LIBRARY 
AT  URBANA-CHAMPAIGN 
BOOKSTACKS 


CAPITAL  AND  INTEKEST 


BY 

EUGEN   V.   BCJHM-BAWEKK 

PROFESSOR  OF  POLITICAL  ECONOMY   IN  THE  UNIVERSITY  OF  INNSBRUCK 


TRANSLATED  WITH  A  PREFACE  AND  ANALYSIS 
BY 

WILLIAM   SMAKT,  M.A. 

LECTURER  ON  POLITICAL  ECONOMY  IN  QUEEN  MARGARET  COLLEGE 
GLASGOW 


NEW  YORK 
BRENTANO'S 

1922, 


TRANSLATOR'S  PREFACE 


MY  only  reasons  for  writing  a  preface  to  a  work  so  exhaustive,  and 

<t     in  itself  so  lucid,  as  Professor  Bohm-Bawerk's  Kapital  und  Kapi- 

talzins.  are  that  I  think  it  may  be  advisable  to  put  the  problem 

with  which  it  deals  in  a  way  more  familiar  to  English  readers,  and 

to  show  that  the  various  theories  stated  and  criticised  in  it  are 

based  on  interpretations  implicitly  given  by  practical,  men  to  com- 

po     nion  phenomena. 

First,  to  state  the  problem.  A  manufacturer  who  starts  business 
with  a  capital  of  £20,000  takes  stock  at  the  end  of  a  year,  and 
finds  that  he  is  richer  by  £2000  —  that  is  to  say,  if  he  sold  plant, 
stock,  and  debts  at  a  fair  valuation,  he  would  obtain  for  them 
£22,000.  The  increment  of  £2000  he  will  probably  call  his 
"profit."  If  asked  to  explain  what  is  the  origin  of  profit  in 
general,  and  of  this  amount  of  profit  in  particular,  andr  further,  why 
this  profit  should  fall  to  him,  his  first  answer  will  probably  be  that 
the  goods  he  manufactures  meet  a  want  felt  by  a  certain  section  of 
the  public,  and  that,  to  obtain  the  goods,  buyers  are  willing  to  pay 
a  price  high  enough  to  allow  him,  over  the  whole  field  of  his 
production  for  one  year,  to  obtain  the  profit  of  £2000. 

This,  however,  immediately  suggests  the  question  why  a  public 
which,  as  a  rule,  is  not  willing  to  pay  more  than  it  can  help  for 
anything,  should  pay  prices  such  as  allow  of  this  profit.  The 
manufacturer's  answer  probably  would  be,  that  it  would  not  be 
worth  his  while  to  put  forth  his  energies  in  manufacturing  for  less 
than  this  amount  of  profit,  as  he  could,  with  at  least  equal  safety 
and  without  personal  exertion,  obtain,  say  £1000  by  lending  his 
capital  to  any  ordinary  productive  undertaking. 

In  this  answer  two  statements  are  involved  :  first,  that  of  the 
£2000  one  part  is  wage  for  personal  exertion,  and,  second,  that  the 
remainder  is  the  "usual  return  to  capital"  without  personal 
exertion.  Thus  is  drawn  a  rough  dividing  line  between  what  is 
usually  called  "  undertaker's  profit  "  and  interest.  Interest  seems  to 
be  denned  as  that  annual  return  to  capital  which  may  be  obtained, 
as  a  rule,  without  personal  exertion.  Accepting  this  answer  we 


vi  TRANSLATOR'S  PREFACE 

should  expect  to  find  the  phenomenon  of  interest  most  easily 
studied  in  the  case  of  a  Limited  Liability  Company,  where  the 
personal  exertion  of  the  shareholders  is  limited  to  choosing  the 
investment,  subscribing  the  capital,  and  receiving  the  dividends. 
The  portion  of  total  "  profit "  obtained  by  the  private  employer  or 
undertaker,  as  such,  is  here  eliminated ;  or,  rather,  it  is  made 
definite  and  measurable  in  being  divided  among  the  managing 
director,  the  ordinary  directors,  and  the  secretary,  who  are  paid  a 
fixed  fee,  salary,  or,  accurately  and  simply,  a  wage. 

A  careful  consideration  of  the  balance  sheet  of  any  such  company 
will  guard  us  against  a  common  misunderstanding.  Such  a  balance 
sheet  will  generally  show  two  funds — a  Depreciation  Fund  and  an 
Insurance  Fund.  The  former,  sometimes  called  Sinking,  Wear  and 
Tear,  Repairs,  or  Replacement  of  Capital  Fund,  secures  that  fixed 
capital,  or  its  value,  is  replaced  in  the  proportion  in  which  it  is 
worn  out,  and  thus  provides  a  guarantee  that  the  value  of  the 
parent  capital  is  not  encroached  upon,  or  inadvertently  paid  away 
in  dividend.  The  latter,  sometimes  called  Equalisation  of  Dividend 
Fund,  is  a  provision  for  averaging  the  losses  that  are  sure  to 
occur  over  a  series  of  years,  and  are  really  a  portion  of  the  current 
expenses.  It  is  only  after  these  funds  are  provided  for  that  the 
dividend  is  paid  over  to  the  shareholders,  and  this  accentuates  two 
important  facts:  (1)  that  interest  properly  so  called  is  something 
distinct  from  any  portion  of  parent  capital,  and  (2)  that  it  is  not 
accounted  for  by  insurance  against  risks. 

The  question  now  is,  Is  such  a  dividend  pure  interest  ?  Here 
we  have  to  reckon  with  the  familiar  fact  that  limited  companies, 
under  similar  conditions,  pay  the  most  various  rates  of  dividend. 
If  then  we  accept  "  dividend  "  as  the  equivalent  of  "  interest "  we 
shall  have  to  conclude  that  varying  rates  of  interest  are  obtainable 
on  equal  amounts  of  capital.1  On  looking  closer,  however,  we  find 
the  dividing  line  again  reasserting  itself.  If  a  sound  industrial 
company  is  known  to  be  paying  a  dividend  higher  than  a  certain 
definite  percentage  on  its  capital,  the  value  of  the  stock,  or  parent 
capital,  will  rise  to  the  point  where  dividend  corresponds  to  an 
interest  no  greater  than  this  definite  percentage — e.g.  the  £100 
stock  of  a  great  railway  paying  5  per  cent  will  rise  to  something 
like  £125,  at  which  price  the  5  per  cent  dividend  on  the  original 
capital  shows  a  return  of  4  per  cent  on  the  new  value  of  the  capital. 

1  This  consideration  of  itself  suggests  the  indefiniteness  of  what  is  usually  called 
Undertaker's  Profit.  In  the  Limited  Liability  Company  this  "  wage  of  intellect"  is 
measured  and  paid,  but  the  varying  dividend  shows  that  it  by  no  means  exhausts 
this  "profit."  The  solution  probably  is  that  the  attempt  to  assess  undertaker's  wage 
on  any  principle  is  hopeless  in  present  circumstances.  It  is  a  "glorious  risk,"  de- 
pending, among  other  things,  on  adroitness,  foresight,  opportunity,  and  exploitation 
of  labour — four  factors  scarcely  reducible  to  figures.  But  with  this  line  of  thought, 
interesting  and  important  as  it  is,  we  have  nothing  to  do  here. 


TRANSLATOR'S  PREFACE  vii 

There  is,  in  short,  in  every  country,  although  varying  from 
country  to  country,  a  certain  annual  return  which  can  be  obtained 
by  capital  with  a  minimum  of  risk,  without  personal  exertion  of  the 
owner.  Its  level  is  usually  determined  by  the  market  price  of  the 
national  security.  We  count  the  2f  per  cent  interest  of  Consols  an 
absolutely  safe  return,  because  the  British  Constitution  is  pledged 
for  the  annual  payment  of  this  amount  of  interest  on  its  debt — on 
the  capital  borrowed  by  the  nation  from  its  members  in  past  years. 
This  we  should  probably  consider  the  proper  economic  interest  for 
capital  invested  in  Great  Britain.  Any  return  above  this  level  we 
should  consider,  either  as  due  to  the  insecurity  of  the  capital  as 
invested  (i.e.  as  a  premium  for  insurance),  or  as  that  still  vague 
quantity  called  "profit."  Thus  Ave  should  probably  consider  the 
4  per  cent  of  our  railway  stocks  as  consisting  of,  say  2|  per  cent 
for  interest  proper,  and  l£  per  cent  insurance  or  equalisation  of 
dividend. 

Now  it  is  this  interest  proper,  obtainable  by  i  .e  owner  of 
capital  without  risk  and  without  personal  effort,  that  is  the  object 
of  our  problem. 

In  which  of  the  many  forms  that  interest  takes  can  we  best  study 
its  nature  ]  It  might  seem  that  the  2f  per  cent  of  Consols  was  the  most 
appropriate  subject  for  examination,  but  a  glance  will  show  that 
this  form  of  interest  is  secondary  and  derivative.  The  nation  as  a 
whole  cannot  pay  interest  on  its  debts  unless  the  citizens  as 
individuals  produce  the  wealth  wherewith  this  interest  is  paid,  other- 
wise the  nation  will  be  paying  away  its  capital.  To  study  interest 
as  expressed  in  the  annual  payments  on  the  Consolidated  National 
Debt  would  be  to  make  the  common  mistake  of  explaining  Natural 
Interest  by  Contract  Interest,  which  is  very  much  the  same  as  ex- 
plaining why  people  pay  interest  by  showing  that  they  do  pay  it. 
The  phenomenon,  then,  must,  primarily,  be  studied  as  it  appears 
in  some  or  other  of  the  forms  of  production  of  wealth.  Let  us 
take  the  case  of  a  manufacturing  company. 

The  essential  features  here,  as  regards  our  problem,  are  that, 
over  a  year's  time,  the  products  manufactured  are  sold  at  a  price 
which  not  only  covers  the  value  of  raw  materials,  reimburses  the 
various  wages  of  manual  and  intellectual  labour,  and  replaces  the 
fixed  capital  as  worn  out,  but  leaves  over  that  amount  of  value  which 
is  divided  out  among  the  capitalist  shareholders  as  interest.  In 
normal  capitalist  production,  that  is  to  say,  not  only  is  the  value 
of  capital  consumed  in  the  production  process  replaced,  but  a 
surplus  of  value  appears.  It  has  not  always  been  perceived  by 
economists  that  this  surplus  value  is  the  essential  phenomenon 
of  what  we  call  interest,  ^-that  interest  on  capital  consists  of  this 
very  surplus  value  and  nothing  else, — but  whenever  it  is  perceived 
the  question  almost  suggests -itself,  What  does  this  surplus  value 


viii  TRANSLATOR'S  PREFACE 

represent  ?  Is  it  merely  a  surplus,  or  is  it  of  the  nature  of  a  wage  ? 
In  other  words,  is  it  something  obtained  either  by  chance  or  force, 
and  corresponding  to  no  service  rendered  by  anybody  or  anything ; 
or  is  it  something  connected  with  capital  or  the  capitalist  •  that, 
economically  speaking,  deserves  a  return  or  a  wage  ? 

A  little  consideration  will  show  that  the  idea  of  a  "mere  sur- 
plus" is  untenable.  When  a  manufacturer  engages  his  capital  in 
production  he,  as  it  were,  throws  it  into  solution,  and  risks  it  all  on 
the  chance  of  the  consuming  public  paying  a  certain  price  for  the 
products  into  which  his  capital  is  transformed.  If  they  will  not 
pay  any  price  at  all  the  capital  never  reappears ;  even  the  labour, 
which  bound  up  its  fortunes  with  the  materials  and  machinery  of 
manufacture,  loses  its  wage,  or  would  do  so  except  for  the  wage 
contract  which  pays  labour  in  advance.  If  the  consumers,  again, 
will  only  pay  a  price  equal  to  the  value  of  the  capital  consumed,  the 
various  workers,  including  the  employer  proper,  will  get  their  wage, 
and  the  value  of  the  capital  itself  will  be  unimpaired,  but  there 
will  be  no  interest.  It  is  only  if  the  consumers  are  willing  to  pay 
a  higher  price  that  capital  can  get  its  interest. 

The  surplus  then,  which  we  call  interest,  appears  primarily  in 
the  value  or  price  of  products — that  is  to  say,  interest  is,  in  the 
first  instance,  paid  over  by  the  consumer  of  goods  in  the  price  of  the 
products  he  buys. 

Now  it  seems  intelligible,  although  it  is  not  really  so  intelligible  as 
is  usually  assumed,  that  the  public  will  always  pay  a  price  for  products 
sufficient  to  reimburse  the  wages  paid  in  producing  them.  The 
labourer,  theoretically,  is  paid  by  what  he  makes — although  this  pro- 
position requires  more  careful  statement  and  limitation  than  can  be 
given  it  here — and  wages  are  supposed,  prima  facie,  to  represent  an 
equivalent  in  value  contributed  to  the  product  by  the  worker.  But 
that  the  consuming  world,  over  and  above  this  wage,  will  pay  a 
surplus  which  does  not  represent  any  equivalent  value  given  to  the 
product,  is  only  conceivable  on  the  supposition  that  the  public  is 
unconscious  that  it  is  paying  such  a  surplus.  This  supposition,  how- 
ever, is  incredible  in  a  community  where  most  of  the  consumers  are 
also  producers.  To  lose  as  consumer  what  one  gains  as  producer  is 
a  game  of  Beggar  my  Neighbour  which  would  scarcely  commend 
itself  to  business  men. 

The  surplus  then  may  be  assumed  to  represent  something  con- 
tributed by  capital  to  the  value  of  products.  This  view  is 
supported  by  the  common  consciousness  of  practical  men, "  who 
certainly  believe  that  capital  plays  a  distinct  and  beneficent  r61e  in 
production. 

If,  now,  we  appeal  to  the  common  consciousness  to  say  what  it 
is  that  capital  does,  or  forbears  to  do,  that  it  should  receive  interest, 
we  shall  probably  get  two  answers.  One  will  be  that  the  owner  of 


TRANSLATOR'S  PREFACE  ix 

capital  contributes  a  valuable  element  to  production  ;  the  other,  that 
he  abstains  from  using  his  wealth  in  his  own  immediate  consumption. 
On  one  or  other  of  these  grounds,  the  capitalist  is  said  to  deserve 
a  remuneration,  and  this  remuneration  is  obtained  by  him  in  the 
shape  of  interest. 

Now  it  might  possibly  be  the  case  that  both  answers  point  to 
elements  indispensable  in  the  explanation  of  interest,  but  a  slight 
consideration  will  show  that  the  two  answers  are  very  different 
from  one  another.  The  one  is  positive — that  capital  does  something ; 
the  other  negative — that  the  capitalist  abstains  from  doing  some- 
thing. In  the  one  case  interest  is  a  payment  for  a  tool ;  in  the 
other,  a  recompense  for  a  sacrifice.  In  the  one  case  the  capitalist 
is  paid  because  the  capital  he  lends  produces,  or  helps  to  produce, 
new  wealth ;  in  the  other  he  is  paid  because  he  abstains  from 
diminishing  wealth  already  produced. 

It  will  become  evident  as  we  go  on  that,  on  these  two  answers, 
which  spring  to  the  lips  of  any  business  man  asked  to  account  for 
interest,  are  based  the  most  important  of  the  theories  criticised  in 
the  present  book.  The  first  answer  is  the  basis  of  the  Productivity 
theories  and  of  the  Use  theories ;  the  second  is  the  basis  of  the 
Abstinence .  theory . 

The  argument  of  the  Productivity  theory  may  be  put  thus. 
Human  labour,  employing  itself  on  the  materials  given  free  by  nature, 
and  making  use  of  no  powers  beyond  the  natural  forces  which 
manifest  themselves  alike  in  the  labourer  and  in  his  environment, 
can  always  produce  a  certain  amount  of  wealth.  But  when  wealth 
is  put  into  the  active  forms  of  capital — of  which  machinery  may  be 
takenas  instance  and  type — and  capital  becomes  intermediary  between 
man  and  his  environment  of  nature,  the  result  is  -that  the  pro- 
duction of  wealth  is  indefinitely  increased.  The  difference  between 
the  results  of  labour  unassisted  and  labour  assisted  by  capital  is, 
therefore,  due  to  capital,  and  its  owner  is  paid  for  this  service  by 
interest. 

The  simpler  forms  of  this  theory  (where  capital  is  credited  with 
a  direct  power  of  creating  value,  or  where  surplus  of  products  is 
tacitly  assumed  to  be  the  same  thing  as  surplus  of  value)  our  author 
has  called  the  Naive  theory.  The  more  complex  formulations  of  it 
— where,  for  instance,  emphasis  is  laid  on  the  displacement  of  labour 
by  capital,  and  interest  is  assumed  to  be  the  value  formerly  obtained 
as  wage,  or  where  prominence  is  given  to  the  work  of  natural 
powers  which,  though  in  themselves  gratuitous,  are  made  available 
only  in  the  forms  of  capitalist  production — he  has  called  the  Indirect 
theories. 

How  slight  a  claim  this  explanation  has  to  the  dignity  of  a 
scientific  theory  appears  in  its  practical  definition  of  interest  as  the 


\ 


x  TRANSLATOR'S  PREFACE 

whole  return  to  capitalist  production  which  is  not  accounted  for 
by  labour.  Yet  the  statement  just  given  is  elaborate  and  logical 
in  comparison  with  that  of  many  of  the  economists  who  profess  the 
Productivity  theory.  Their  usual  treatment  of  the  interest  problem 
is  to  co-ordinate  capital  with  the  other  factors  of  production,  land 
and  labour,  and  assume  that  interest  is  the  payment  for  the  services 
of  capital,  as  wage  is  for  the  services  of  labour,  give  ample  illustra- 
tion of  the  triumphs  of  capitalist  production,  and  pass  on  to  discuss 
the  rise  and  fall  of  its  rate. 

If,  however,  we  demand  an  answer  to  what  we  have  formulated 
as  the  true  problem  of  interest,  we  shall  make  the  discovery  that 
the  Productivity  theory  has  not  even  put  that  problem  before  itself. 
The  amount  of  truth  in  the  theory  is  that  capital  is  a  most  powerful 
factor  in  the  production  of  wealth,  and  that-  capital,  accordingly,  is 
highly  valued.  But  to  say  that  capital  is  "  productive  "  does  not 
explain  interest,  for  capital  would  still  be  productive  although  it 
produced  no  interest ;  e.g.  if  it  increased  the  supply  of  commodities 
the  value  of  which  fell  in  inverse  ratio,  or  if  its  products  were, 
both  as  regards  quantity  and  value,  greater  than  the  products  of 
unassisted  labour.  The  theory,  that  is  to  say,  explains  why  the 
manufacturer  has  to  pay  a  high  price  for  raw  materials,  for  the 
factory  buildings,  and  for  the  machinery — the  concrete  forms  of 
capital  generally.  It  does  not  explain  why  he  is  able  to  sell  the 
manufactured  commodity,  which  is  simply  these  materials  and 
machines  transformed  by  labour  into  products,  at  a  higher  price 
than  the  capital  expended.  It  may  explain  why  a  machine  doing  the 
work  of  two  labourers  is  valued  at  £100,  but  it  does  not  explain 
why  capital  of  the  value  of  £100  now  should  rise  to  the  value  of 
£105  twelve  months  hence  ;  in  other  words,  why  capital  employed 
in  production  regularly  increases  to  a  value  greater  than  itself. 

It  must  be  admitted  that  there  is  something  very  plausible  in 
this  theory,  particularly  in  apparently  simple  illustrations  of  it. 
A  poor  widow  owns  a  chest  of  tools  valued  at  £50.  An  unemployed 
carpenter  borrows  them.  The  fifty  shillings  interest  he  pays  seems 
almost  an  inadequate  return  for  the  added  productiveness  given  to 
his  labour  over  the  year.  Is  not  the  interest  made  possible  by  the 
qualities  of  the  tools  ?  The  facts  here  are  as  stated :  without  pro- 
duction there  would  be  no  interest.  So  without  land  there  would 
be  no  turnips,  but  the  existence  of  land  is  scarcely  the  sufficient 
cause  of  the  turnips.  Suppose  the  widow  sold  the  chest  of  tools  to 
another  carpenter  for  £50.  His  labour  also  would  be  rendered 
productive,  and  in  the  same  degree,  but  he  would  pay  no  interest. 
Or  suppose  she  sold  the  tools  for  £50,  but  did  not  get  payment  for 
a  year ;  the  reason  she  would  give  for  asking  fifty  shillings  extra 
would  be,  not  that  the  tools  were  productive,  but  that  the  payment 
was  deferred.  The  important  circumstance  forgotten  in  this  theory 


TRANSLATOR'S  PREFACE  xi 

is  that  the  productiveness  of  concrete  capital  is  already  discounted 
in  its  price.  The  chest  of  tools  would  be  of  no  value  but  for  the 
natural  forces  embodied  in  them  or  made  available  by  them.  To 
ascribe  interest  to  the  productive  power  of  capital  is  to  make  a 
double  charge  for  natural  forces — in  the  price  and  in  the  interest. 
Meanwhile  we  may  note  one  significant  circumstance  in  all  these 
transactions, — that  the  emergence  of  interest  is  dependent  on  a 
certain  lapse  of  time  between  the  borrowing  and  the  paying. 

It  cannot  be  too  often  reiterated  that  the  theory  which  explains 
interest  must  explain  surplus  value — not  a  surplus  of  products  which 
may  obtain  value  and  may  not ;  not  a  surplus  of  value  over  the 
amount  of  value  produced  by  labour  unassisted  by  capital ;  but  a 
surplus  of  value  in  the  product  of  capital  over  the  value  of  the 
capital  consumed  in  producing  it.  The  insufficiency  of  the 
present  theory  to  meet  these  requirements  may  be  shown  in 
another  way.  It  is  often  assumed  that,  if  a  labouring  man 
during  his  week's  work  consumes  the  value  of,  say  20s.  in  food, 
tools,  etc.,  and  during  that  week  turns  20s.  worth  of  raw  material 
into  finished  commodities,  these  commodities,  together,  will  sell  in 
the  market  for  something  over  40s.  But  the  ordinary  life  of  many 
a  peasant  proprietor  who  lives  by  continual  toil,  and  never  "  gets 
out  of  the  bit," — that  is,  never  does  more  than  reproduce  his  bare 
living — might  show  that  the  assumption  is  not  universally  valid, 
and  that  labour  by  no  means  always  produces  more  value  than  it 
consumes.  But  the  plausibility  of  the  Productivity  theory  is  the 
parallelism  it  assumes  between  labour  and  capital— "the  suggestion 
that  interest  is  wage  for  capital's  work.  If,  however,  the  emer- 
gence of  surplus  value  in  the  case  of  simple  labour  needs  explan- 
ation, much  more  does  it  in  the  case  of  capitalist  production. 
What  is  a  product  or  commodity  but  raw  material  plus  labour? 
Labour  and  capital  co-operate  in  making  it,  and  the  individual 
form  and  share  of  each  is  lost  in  the  joint  product.  But,  of  the 
two,  labour  is  the  living  factor,  and  if  surplus  value  does  emerge  in 
capitalist  production  as  a  regularly  recurring  phenomenon,  it  is  more 
likely  that  it  comes  from  the  living  agent  than  from  the  dead  tool. 
Thus  the  Productivity  theory  ends  in  suggesting  that  other  and 
hostile  theory  according  to  which  surplus  value  comes  from  labour, 
and  is  only  snatched  away  by  capital. 

But  the  fact  is  that,  in  all  this,  we  have  an  entire  misconception 
of  the  origin  of  value.  Value  cannot  come  from  production.1 
Neither  capital  nor  labour  can  produce  it.  What  labour  does  is  to 
produce  a  quantity  of  commodities,  and  what  capital  co-operating 
with  labour  usually  does  is  to  increase  that  quantity.  -These 
commodities,  under  certain  known  conditions,  will  usually  possess 
value,  though  their  value  is  little  proportioned  to  their  amount ; 
1  See  the  striking  passage  on  pp.  134,  135. 


xii  TRANSLATOR'S  PREFACE 

indeed,  is  often  in  inverse  ratio.  But  the  value  does  not  arise  in  the 
production,  nor  is  it  proportional  to  the  efforts  and  sacrifices  of  that 
production.  The  causal  relation  runs  exactly  the  opposite  way.  To 
put  it  in  terms  of  Monger's  law,  the  means  of  production  do  not 
account  for  nor  measure  the  value  of  products  ;  on  the  contrary,  the 
value  of  products  determines  and  measures  the  value  of  means  of  pro- 
duction. Value  only  arises  in  the  relation  between  human  wants  and 
human  satisfactions,  and,  if  men  do  not  "  value  "  commodities  when 
made,  all  the  labour  and  capital  expended  in  the  making  cannot  confer 
on  them  the  value  of  the  smallest  coin.  But  if  neither  capital  nor 
labour  can  create  value,  how  can  it  be  maintained  that  capital 
employed  in  production  not  only  reproduces  its  own  value,  but 
produces  a  value  greater  than  itself  ? 

I  confess  I  find  some  difficulty  in  stating  the  economic  argument 
of  what  our  author  has  called  the  Use  theory  of  interest,  and  I  am 
almost  inclined  to  think  that  he  has  done  too  much  honour  to  some 
economists  in  ascribing  to  them  this  theory,  or,  indeed,  any  definite 
theory  at  all. 

It  is  of  course  a  familiar  expression  of  everyday  life  that  interest 
is  the  price  paid  for  the  "  use  of  capital,"  but  most  writers  seem  to 
have  accepted  this  formula  without  translating  it.  If  the  formula, 
however,  is  considered  to  contain  a  scientific  description  of  interest, 
we  must  take  the  word  "  use  "  in  something  like  its  ordinary  signifi- 
cation, and  consider  the  "  use  of  capital "  as  something  distinct  from 
the  capital  itself  which  affords  the  use.  The  loan  then  will  be  a 
transfer  and  sale  of  this  "use,"  and  it  becomes  intelligible  how,  at 
the  end  of  the  loari  period,  the  capital  lent  is  returned  undeteriorated 
in  value ;  it  was  .not  the  capital  that  was  lent,  but  the  use  of  the 
capital.  To  put  it  in  terms  of  Bastiat's  classical  illustration  :  James, 
who  lends  a  plane  to  William,  demands  at  the  year's  end  a  new 
plane  in  place  of  the  one  worn  out,  and  asks  in  addition  a  plank,  on 
the  ostensible  ground  that  over  a  year  William  had  the  advantage, 
the  use  of  the  plane. 

If,  however,  we  look  carefully  into  this  illustration,  we  shall  see 
that  William  not  only  had  the  use  of  the  plane  but  the  plane  itself,  as 
appears  from  the  fact  that  the  plane  was  worn  out  during  the 
year.  Here  then  the  using  of  the  plane  is  the  same  thing  as  the 
consumption  of  the  plane  ;  payment  for  a  year's  "use"  is  payment  for 
the  whole  capital  value  of  the  plane.  Yet  the  payment  demanded  at 
the  year's  end  is  not  the  capital  value  of  the  plane,  the  sum  lent,  but 
also  a  surplus,  a  plank,  under  the  name  of  interest.  To  put  it  another 
way.  .  If  William  on  the  1st  of  January  had  bgught  the  plane 
outright  from  James,  he  would  have  paid  him  on  that  date  a  value 
equivalent,  say,  to  a  precisely  similar  plane  ;  he  would  have  had  the 
"use"  of  the  plane  over  365  days  ;  and  by  31st  December  the  plane 


TRANSLATOR'S  PREFACE  xiii 

would  have  been  consumed.  As  things  are,  he  pays  nothing  on  1st 
January;  he  has  the  use  of  the  plane  over  the  year;  by  31st 
December  the  plane  is  consumed ;  and  next  day  he  has  to  pay  over 
to  James  a  precisely  similar  plane  plus  a  plank.  The  essential 
difference  between  the  two  transactions  is  that,  on  1st  January  the 
price  of  the  plane  is  another  similar  plane ;  on  the  31st  December 
it  is  a  plane  plus  a  plank. 

This  again  suggests  a  very  different  source  of  interest,  viz.  that  it 
is  to  be  found  in  the  difference  of  time  between  the  two  payments. 

Thus  the  Use  theory,  as  put  in  this  illustration,  has  only  to  be 
clearly  stated  to  show  that  it  involves  a  confusion  of  thought  as 
regards  the  word  "use."  It  is  not  difficult  to  find  the  origin  of  the 
confusion,  and  the  fallacy  of  the  theory  may  be  most  easily  shown 
thereby.  It  has  arisen  in  too  exclusively  studying  the  loan  under 
the  form  properly  called  Hire — that  is,  where  a  durable  good  is  lent 
and  is  returned  at  the  year's  end,  deteriorated  indeed  but  not 
destroyed.  If  we  lend  out  a  horse  and  cart,  a  tool,  a  house,  we  are 
apt  to  conclude  that  the  interest  paid  us  is  a  price  for  the  "use"  of 
these,  because  we  get  the  goods  themselves  back  in  a  year's  time, 
somewhat  deteriorated  in  value,  but  visibly  the  same  goods ;  and 
probably  most  of  us  would  fall  into  the  common  error  of  supposing 
the  interest  to  be  the  equivalent  of  the  wear  and  tear,  i.e.  a  portion 
of  the  parent  capital.  This  is  rendered  more  plausible  by  the 
fact  that  most  loans  of  capital  are  made  in  money  ;  we  unconsciously 
assume  the  gold  or  notes  we  receive  to  be  the  same  gold  or  notes 
we  lent.  But  if  we  take  the  case  of  coals,  or  grain,  or  perishable 
goods  generally,  and  ask  how  it  is  possible  to  conceive  of  these 
goods  giving  off  a  use  and  being  returned  to  us  substantially  the 
same  as  before,  less  wear  and  tear,  wa  must  perceive  that  interest, 
in  this  case  at  least,  cannot  be  a  payment  for  the  "  use  "  of  goods, 
but  for  the  consumption  of  them,  for  the  goods  themselves.  Are  we 
to  conclude  then  that  durable  goods  admit  of  an  independent  use 
possessing  independent  value,  and  that  perishable  goods  do  not  ? 
If  so,  interest  cannot  be  the  price  of  the  "  use  "  of  capital,  as  interest 
is  paid  for  all  capital,  whether  durable  or  perishable. 

This  theory,  in  fact,  affords  a  striking  instance  of  how  our  science 
has  revenged  itself  for  our  unscientific  treatment  of  it.  It  was 
almost  a  misfortune  that  Adam  Smith  put  its  first  great  treatise  in 
such  an  attractive  form  that  "the  wayfaring  men,  though  fools,  might 
not  err  therein."  The  result,  in  a  good  many  cases,  has  been 
an  emulation  among  economists  to  keep  their  work  at  the  same 
level  of  clearness  and  attractiveness,  and  this  was  more  easily  effected 
by  discussion  on  the  great  social  and  industrial  problems  than  by 
severe  attention  to  scientific  method.  In  no  other  way  can  I 
account  for  the  fact  that,  a  hundred  years  after  the  appearance 
of  JFealth  of  Nations,  the  great  American  and  German  economists 


xiv  TRANSLATOR'S  PREFACE 

should  be  devoting  so  much  of  their  time  to  elementary  and 
neglected  conceptions.  One  of  these  neglected  conceptions  is  that 
of  the  "  Use  of  goods,"  and  one  of  the  most  important  contribu- 
tions to  economic  theory  is  the  section  devoted  by  Dr.  Bohm- 
Bawerk  to  that  subject  Briefly  it  amounts  to  this,  that  all 
material  "goods,"  the  objects  of  economical  attention  as  distinct  from 
mere  "things,"  are  economic  only  in  virtue  of  their  use,  real  or 
imaginary.  Every  good  is  nothing  but  the  sum  of  its  uses,  and  the 
value  of  a  good  is  the  value  of  all  the  uses  contained  in  it  If  a 
good,  such  as  gunpowder,  can  only  serve  its  purpose  or  afford  its 
use  all  at  one  time,  we  employ  the  word  "  consumption  "  for  the  act 
by  which  the  good  gives  forth  its  use.  If,  on  the  contrary,  it  is  so 
constituted  that  its  life-work  extends  over  a  period  of  time,  then 
each  individual  use  diminishes  the  sum  of  uses  which  constitutes  the 
essential  nature  of  the  good.  But  Consumption  is  only  a  single 
exhaustive  use,  and  Use  is  only  a  prolonged  consumption. 

This  at  once  enables  us  to  estimate  the  Use  theory  of  interest 
The  "  use  of  capital "  is  not  something  apart  from  the  using  of  the 
goods  which  constitute  the  capital ;  it  is  their  consumption,  fast  or 
slow  as  the  case  may  be ;  and  a  payment  for  the  use  of  capital 
is  nothing  but  a  payment  for  the  consumption  of  capital.  The  true 
nature  of  the  loan  transaction  is,  not  that  in  it  we  get  the  use  of 
capital  and  return  it  deteriorated,  but  that  we  get  the  capital  itself, 
consume  it,  and  pay  for  it  by  a  new  sum  of  value  which  somehow 
includes  interest.  If,  however,  "we  admit  this,  we  are  landed  in  the 
old  problem  once  more — how  do  goods,  when  used  as  capital  in 
production,  increase  in  value  to  a  sum  greater  than  their  own 
original  value  ?  and  the  Use  th*eory  ends  in  raising  all  the  difficulties 
of  the  Productivity  theories. 

We  have  seen  that  the  previous  theories  were  founded  on  some 
positive  work  supposed  to  be  done  by  capital.  The  Abstinence 
theory,  on  the  other  hand,  is  founded  on  the  negative  part  played 
by  the  capitalist.  Wealth  once  produced  can  be  used  either  in 
immediate  consumption — that  is,  for  the  purposes  to  which,  in  the 
last  resort,  all  wealth  is  intended ;  or  it  can  be  used  as  capital — 
that  is,  to  produce  more  wealth,  and  so  increase  the  possibilities  of 
future  consumption.  The  owner  of  wealth  who  devotes  it  to  this 
latter  purpose  deserves  a  compensation  for  his  abstinence  from 
using  it  in  the  former,  and  interest  is  this  compensation.  It  must 
be  carefully  noted  that  the  abstinence  here  spoken  of  is  not  absti- 
nence from  personal  employment  of  capital  in  production — that 
would  simply  throw  us  back  on  the  previous  question,  viz.  how  the 
owner  could  make  interest  (as  distinct  from  wage)  by  the  use  of  his 
capital — but  abstinence  from  immediate  consumption  in  the  many 
forms  of  personal  enjoyment  or  gratification. 


TRANSLATOR'S  PREFACE  xv 

At  the  back  of  this  theory  of  interest  is  that  theory  of  value 
which  makes  it  depend  upon  costs  of  production.  Senior,  the  first  and 
principal  apostle  of  the  Abstinence  theory,  saw  very  clearly  that  the 
inclusion  of  interest  or  profit  among  costs  was  an  abuse  of  language. 
The  word  "  Cost "  implies  sacrifice,  not  surplus.  But  in  production, 
as  it  seemed  to  him,  there  was  another  sacrifice  besides  the  prominent 
one  of  labour,  that  of  abstinence,  and  interest  in  his  view  was  the 
compensation  for  this  sacrifice. 

It  must  be  confessed  that  to  those  who  are  in  the  habit  of 
looking  upon  all  work  as  sacrifice,  and  all  wage  as  compensation, 
there  is  something  a  little  ridiculous  in  the  statement  of  this  theory. 
The  "abstinence "'of  a  rich  man  from  what  he  probably  cannot 
consume,  the  capitalist's  "compensation"  for  allowing  others  to 
preserve  his  wealth  from  moth  and  rust  by  using  it,  the  millionaire's 
"sacrifice"  measured  by  his  £100,000  a-year — these  are  the  familiar 
weapons  of  those  who  consider  the  evils  of  interest  aggravated  by 
its  claim.  Yet  if  we  ask  whether  the  amount  of  capital  in  the 
world  would  have  been  what  it  is  if  it  had  not  been  for  the 
"abstinence"  of  those  who  had  the  commamd  over  wealth,  to 
accumulate  or  dissipate  it,  we  can  see  that  such  jibes  are  more 
catching  than  convincing.  The  strength  of  the  Abstinence  theory 
is  that  the  facts  it  rests  on  really  give  the  explanation  how  capital 
comes  into  being  in  primitive  conditions  and  in  new  countries.  The 
first  efforts  to  accumulate  capital  must  be  attended  by  sacrifice ;  a 
temporary  sacrifice,  of  course,  to  secure  a  permanent  gain,  but,  in 
the  first  instance  at  least,  a  material  sacrifice.  It  is  with  the 
beginnings  of  national  capital  as  it  is  with  the  beginnings  of 
individual  capital ;  there  is  need  of  foresight,  effort,  perhaps  even 
curtailment  in  necessaries. 

But  to  account  for  the  origin  of  capital  by  abstinence  from 
consumptive  use  is  one  thing ;  to  account  for  interest  is  another. 
In  all  production  labour  sacrifices  life,  and  capital  sacrifices 
immediate  enjoyment.  It  seems  natural  to  say  that  one  part  of  the 
product  pays  wage  and  another  pays  interest,  as  compensation  for 
the  respective  sacrifices.  But  labour  is  not  paid  because  it  makes 
a  sacrifice,  but  because  it  makes  products  which  obtain  value  from 
human  wants ;  and  capital  does  not  deserve  to  be  paid  because  it 
make  sacrifices — which  is  a  matter  of  no  concern  to  any  one  but 
the  capitalist — but  because  of  some  useful  effect  produced  by  its 
co-operation.  Thus  we  come  back  to  the  old  question,  What 
service  does  capital  render  that  the  abstinence  which  preserves  and 
accumulates  it  should  get  a  perpetual  payment  1  And  if,  as  we  saw, 
productivity  cannot  account  for  interest,  no  more  can  abstinence. 

Dr.  Bohm-Bawerk's  chief  criticism,  however,  is  directed  to  a  more 
fundamental  mistake  in  Senior's  famous  theory.  Senior  included 
abstinence  among  the  costs  of  production  as  a  second  and 

b 


xvi  TRANSLATOR'S  PREFACE 

independent  sacrifice.  In  a  singularly  subtle  analysis  Bohm-Bawerk 
shows  that  abstinence  is  not  an  independent  sacrifice  but  an 
alternative  one.  The  analysis  may  be  more  easily  understood  from 
the  following  concrete  example.  An  owner  of  capital  embarks  it  in 
a  productive  undertaking.  In  doing  so  he  decides  to  undergo  the 
sacrifice  of  labour  (in  personally  employing  his  capital),  and  that 
labour  is  made  productive  and  remunerative  by  the  aid  of  the 
capital  If,  in  calculating  the  remuneration  due  him,  he  claims  one 
sum  as  wage  for  labour,  and  another  as  reward  for  abstaining  from 
the  immediate  enjoyment  of  his  own  wealth,  he  really  makes  the 
double  calculation  familiarly  known  as  eating  one's  cake  and  having 
it.  His  labour  would  not  have  yielded  the  profitable  result  which 
returns  him  the  (undertaker's)  wage  without  the  assistance  of  the 
capital ;  he  cannot  charge  for  the  sacrifice  of  his  wealth  as  wealth 
and  .for  the  sacrifice  of  his  wealth  as  capital.  The  truth  is  that,  in 
this  case,  the  one  sacrifice  of  labour  admits  of  being  estimated  in 
two  ways :  one  by  the  cost  to  vital  force ;  the  other  and  more  com- 
mon, by  the  greater  satisfaction  which  would  have  been  got  from 
the  immediate  use  of  capital  as  wealth  at  an  earlier  period  of  time. 

In  view  of  the  unsatisfactoriness  of  the  answers  hitherto  given  to 
our  problem  it  is  easy  to  see  how  another  answer  would  arise.  The 
power  wielded  by  the  owners  of  wealth  in  the  present  day  needs 
no  statement.  It  is  not  only  that  "every  gate  is  barred  with  gold," 
but  that,  year  by  year,  the  burden  of  the  past  is  becoming  heavier  on 
the  present.  Wealth  passes  down  from  father  to  son  like  a  gathering 
snowball,  at  the  same  time  as  industry  gets  massed  into  larger  and 
larger  organisations,  and  the  guidance  and  spirit  of  industry  is  taken 
more  and  more  out  of  the  hands  of  the  worker  and  given  to  the 
capitalist.  Of  two  men,  in  other  respects  equal,  the  one  who  has 
wealth  is  able  not  only  to  preserve  the  value  of  his  wealth  intact, 
but  to  enjoy  an  annual  income  without  risk  or  trouble,  and,  provid- 
ing that  he  lives  well  within  his  income,  can  add  steadily  to  the 
sum  of  his  wealth.  The  other  has  to  work  hard  for  all  he  gets  ; 
time  does  nothing  for  him.  If  he  saves  it  is  at  a  sacrifice ;  yet  only 
in  this  sacrifice  is  there  any  chance  of  his  rising  out  of  the  dull  round 
which  repeats  each  day  the  labour  of  the  last — that  is,  only  as  he 
becomes  an  owner  of  capital.  Thus,  in  course  of  time  there  appears 
a  favoured  class  who  are  able  not  only  to  live  without  working,  but 
to  direct,  control,  and  even  limit  the  labour  of  the  majority. 

Now  if,  when  the  onus  of  justifying  its  existence  is  thrown  upon 
capital,  economic  theory  can  only  account  for  this  income  without 
risk  and  without  work  by  pointing  to  the  "  productive  power  "  of 
capital,  or  to  the  "sacrifice  of  the  capitalist,"  it  is  easy  to  see  how 
another  theory  should  make  its  appearance,  asserting  that  interest 
is  nothing  else  than  a  forced  contribution  from  helpless  or  ignorant 


TRANSLATOR'S  PREFACE  xvii 

people ;  a  tribute,  not  a  tax.  Rodbertus's  picture  of  the  working 
man  as  the  lineal  descendant  of  the  slave — "  hunger  a  good  substi- 
tute for  the  lash  ";  Lassalle's  mockery  of  the  Rothschilds  as  the 
chief  "  abstainers  "  in  Europe ;  Marx's  bitter  dialectic  on  the  degra- 
dation of  labour,  are  all  based  on  generous  sympathy  with  the 
helpless  condition  of  the  working  classes  under  capitalist  industry, 
and  many  shut  their  eyes  to  the  weakness  of  Socialist  economics 
in  view  of  the  strength  of  Socialist  ethics. 

The  Exploitation  theory  then  makes  interest  a  concealed  contri- 
bution ;  not  a  contribution,  however,  from  the  consumers,  but  from 
the  workers.  Interest  is  not  a  pure  surplus  obtained  by  combination 
of  capitalists.  It  does  represent  a  sacrifice  made  in  production,  but 
not  a  sacrifice  of  the  capitalists.  It  is  the  unpaid  sacrifice  of  labour. 
It  has  its  origin  in  the  fact  that  labour  can  create  more  than  its 
own  value.  A  labourer  allowed  free  access  to  land,  as  in  a  new  coun- 
try, can  produce  enough  to  support  himself  and  the  average 
family,  and  have  besides  a  surplus  over.  Translate  the  free 
labourer  into  a  wage  earner  under  capitalism,  pay  him  the  wage 
which  is  just  sufficient  to  support  himself  and  his  family,  and  here 
also  it  is  the  case  that  he  can  produce  more  than  his  wage.  Suppose 
the  labourer  to  create  the  value  of  his  wage,  say  3s.  in  six  hours' 
work,  then,  if  the  capitalist  can  get  the  worker  to  work  longer  than 
six  hours  for  the  same  wage,  he  may  pocket  the  extra  value  in  the 
name  of  profit  or  interest.  Here  the  modern  conditions  of  industry 
favour  the  capitalist.  The  working  day  of  ten  to  twelve  hours  is  a 
sort  of  divine  institution  to  the  ignorant  labourer.  As  the  product 
does  not  pass  into  his  own  hand,  he  has  no  means  of  knowing  what 
the  real  value  of  his  day's  work  is.  The  only  lower  limit  to  his  wage 
is  that  sum  which  will  just  keep  himself  and  his  family  alive, 
although,  practically,  there  is  a  lower  limit  when  the  wife  and 
children  become  the  breadwinners  and  the  capitalist  gets  the  labour  of 
five  for  the  wage  of  one.  On  the  other  hand,  the  increase  of  wealth 
over  population  gradually  displaces  labour,  and  allows  the  same 
amount  of  work  to  be  done  by  fewer  hands;  this  brings  into  existence 
a  "  reserve  "  to  the  industrial  army,  always  competing  with  those  left 
in  work,  and  forcing  down  wages.  Thus  the  worker,  unprotected, 
gets  simply  the  reproduced  value  of  a  portion  of  his  labour ;  the 
rest  goes  to  capital,  and  is  falsely,  if  conscientiously,  ascribed  to  the 
efficiency  of  capital. 

I  feel  that  it  would  be  impertinence  in  me  to  say  anything  here 
that  would  anticipate  the  complete  and  masterly  criticism  brought 
against  this  theory  in  Book  VI.  The  crushing  confutation  of  the 
Labour  Value  theory  is  work  that  will  not  require  to  be  done  twice 
in  economic  science,  and  the  vindication  of  interest  as  a  price  for  an 
economic  service  or  good  suggested  by  the  very  nature  of  things 
("  which  may  be  modified  but  cannot  be  prevented  ")  will  necessi- 


xviii  TRANSLATOR'S  PREFACE 

tate  reconsideration  by  the  Socialist  party  of  their  official  economic 
basis. 

But  it  would  be  easy  to  misunderstand  the  precise  incidence  of 
this  criticism,  and  perhaps  it  is  well  to  point  out  what  it  does  and 
what  it  does  not  affect. 

It  proves  with  absolute  finality  that  the  Exploitation  theory  gives 
no  explanation  of  interest  proper.  But  this  is  far  from  saying  that 
Exploitation  may  not  explain  a  very  large  amount  of  that  further 
return  to  the  joint  operation  of  capital  and  labour  which  is  vaguely 
called  "  profit."  We  saw  that  the  value  paid  by  a  Limited  Liability 
Company  as  dividend,  or  the  return  to  capital  which  a  private  owner 
generally  calls  his  profit,  consists  of  two  parts  :  of  interest  proper 
and  of  undertaker's  profit.  The  latter,  rightly  considered,  is  a  wage 
for  work,  for  intellectual  guidance,  organisation,  keen  vision,  all  the 
qualitiesthat  makea  good  business  man.  There  are  two  ways  in  which 
this  wage  may  be  obtained  :  to  use  a  Socialist  phrase,  by  exploiting 
nature  and  by  exploiting  man.  To  the  first  category  belongs  all 
work  of  which  the  farmer's  is  the  natural  type  :  that  which  visibly 
produces  its  own  wages,  whether  by  directly  adding  to  the  amount 
and  quality  of  human  wealth,  or  preserving  that  already  produced, 
or  changing  it  into  higher  forms,  or  making  it  available  to  wider 
circles.  In  this  category  A's  gain  is  B's  gain.  To  the  second 
category  belong  those  perfectly  fair  modes  of  business  activity  where 
one  uses  his  intelligence,  tact,  taste,  sharpness,  etc.,  to  get  ahead  of 
his  fellows,  and  "  take  the  trade  "  from  them.  Here  A's  gain  is  B's 
loss,  but  the  community  share  in  A's  gain,  and  even  B  shares  in  it, 
by  being  better  served  as  a  consumer.  But  to  this  category  also 
belong  those  numerous  forms  of  occupation  which  involve  taking 
advantage  of  poor  men's  wants  and  necessities  to  snatch  a  profit, 
and  one  of  those  forms  is  the  underpaying  of  labour. 

Any  one  who  has  realised  the  difficulty  of  the  wages  question 
will  understand  that  this  underpaying  may  be  quite  unintentional. 
Capitalists,  no  less  than  labourers,  are  under  the  domination  of  the 
capitalist  system,  and,  under  the  steady  pressure  of  competition, 
it  is  difficult  for  an  employer  to  be  just,  not  to  say  generous.  His 
prices  are  regulated  not  by  his  own  cost  of  production,  but  by  the 
costs  of  production  in  the  richest  and  best  appointed  establishments 
of  his  rivals ;  and  yet  his  workers'  wages  have  to  be  regulated  by  an 
equation  between  these  prices,  and  the  wages  of  labour  in  similar 
trades  and  in  the  near  vicinity.  In  fact  the  difficulties  of  determin- 
ing a  "just "  wage  are  so  great  that  the  temptation  is  overwhelming 
to  ascertain  what  labour  is  worth  by  the  easy  way  of  ascertaining 
what  labour  will  take,  and  if  fifty  women  are  at  the  gate  offering 
their  services  for  a  half  of  what  fifty  men  are  earning,  who  is  to 
determine  what  a  "  fair  wage  "  is  1 

It  should  then  be  at  once  and  frankly  confessed  that  the  Socialist 


TRANSLATOR'S  PREFACE  xix 

contention  may  afford  an  explanation  of  a  great  proportion  of  what 
is  vaguely  known  as  "undertaker's  profit."  To  go  farther  however, 
and  extend  this  explanation  to  all  return  to  capitalist  production 
which  is  not  definitely  wage,  is  economic  shortsightedness,  that 
brings  its  own  revenge. 

Bohm-Bawerk's  refutation  of  the  Exploitation  theory  is  not  a 
refutation  of  Socialism,  but -of  a  certain  false  economical  doctrine 
hitherto  assumed  by  the  great  Socialist  economists  as  negative  basis 
for  that  social,  industrial,  and  political  reconstitution  of  things 
which  is  Socialism.  Morality  and  practical  statesmanship  may 
determine  that,  in  the  interests  of  the  community,  purely  economic 
laws  be  subordinated  to  moral  and  political  laws ;  or,  to  put  it  more 
accurately,  that  economic  laws,  which  would  assert  themselves  under 
"perfect  competition,"  be  limited  by  a  social  system  which  substitutes 
co-operation  for  competition.  That  is  to  say,  the  work  of  capital  in 
production  may  be  quite  definitely  marked  out,  and  its  proper  rela- 
tion to  the  value  it  accompanies  be  exactly  determined,  and  yet  the 
distribution  of  its  results  may  be  taken  from  private  owners  and 
given  over  to  the  corporate  owning  of  the  state.  But  while  the 
advantage  accruing  from  the  use  of  capital  would  here  be  regulated 
by  a  mechanical  system,  interest  would  remain,  economically,  exactly 
as  Bohm-Bawerk  has  stated  it. 

As  to  Dr.  Bohm-Bawerk's  own  theory  of  interest  I  do  not  feel  at 
liberty  to  anticipate,  or  put  in  short  compass,  the  contents  of  the 
second  volume  now  published,  Die  Positive  Theorie  des  Kapitals. 
The  reader  will  find  the  essence  of  it  in  pp.  257-259  of  the  present 
work. 

It  might  be  advisable,  however,  to  put  his  theory  into  concrete 
terms.  According  to  it,  when  we  lend  capital,  whether  it  be  to  the 
nation  or  to  individuals,  the  interest  we  get  is  the  difference  in 
popular  estimation  and  valuation  between  a  present  and  a  future 
good.  If  we  lend  to  direct  production,  the  reason  we  get  interest 
is  not  that  our  capital  is  capable  of  reproducing  itself  and  more. 
The  explanation  of  this  reproduction  is  to  be  found  in  the  work  of 
those  who  employ  the  capital,  both  manual  and  intellectual  workers. 
We  get  interest  simply  because  we  prefer  a  remote  to  a  present 
result.  It  is  not  that  by  waiting  we  get  more  than  we  give  ; 
what  we  get  at  the  year's  end  is  no  more  than  the  equivalent 
value  of  what  we  lent  a  year  before.  Capital  plus  interest  on  31st 
December  is  the  full  equivalent  of  capital  alone  on  1st  January 
preceding.  Interest  then  is  in  some  sense  what  Aquinas  called  it, 
a  price  asked- for  time.  Not  that  any  one  can  get  the  monopoly  of 
time,  and  not  that  time  itself  has  any  magic  power  of  producing 
value,  but  that  the  preference  by  the  capitalist  of  a  future  good 
to  a  present  one  enables  the  worker  to  realise  his  labour  in  under- 


xx  TRANSLATOR'S  PREFACE 

takings  that  save  labour  and  increase  wealth.  But  as  capital 
takes  no  active  role  in  production,  but  is  simply  material  on 
which  and  tools  by  which  labour  works,  the  reward  for  working 
falls  to  the  worker,  manual  and  intellectual ;  the  reward  for  waiting, 
to  the  capitalist  only.  Economically  speaking,  as  wage  is  a  fair 
bargain  with  labour,  because  labour  can  produce  its  own  wage,  so  is 
interest  a  fair  bargain  with  the  capitalist,  because  in  waiting  the 
capitalist  merely  puts  into  figures  the  universal  estimate  made  by 
men  between  present  and  future  goods,  and  the  capitalist  is  as 
blameless  of  robbery  as  the  labourer. 

Dr.  Bohm-Bawerk's  theory  of  Interest,  then,  is  an  expansion  of 
an  idea  thrown  out  by  Jevons  but  not  applied.  "  The  single  and 
all-important  function  of  capital,"  said  Jevons,  "is  to  enable  the 
labourer  to  await  the  result  of  any  long-lasting  work — to  put  an 
interval  between  the  beginning  and  the  end  of  an  enterprise." 
Capital,  in  other  words,  provides  an  indispensable  condition  of 
fruitful  labour  in  affording  the  labourer  time  to  employ  lengthy 
methods  of  production. 

If  we  view  the  possession  of  riches  as,  essentially,  a  command 
over  the  labour  of  others,  we  might  say  that  interest  is  a  premium 
paid  to  those  who  do  not  present  their  claims  on  society  in  the 
present.  The  essence  of  interest,  in  short,  is  Discount. 

In  concluding,  I  should  like  to  say  with  Dr.  James  Bonar1 — that, 
while  it  would  be  bold  to  affirm  that  Professor  Bohm-Bawerk  has 
said  the  last  word  on  the  theory  of  Interest,  his  book  must  be 
regarded  as  one  with  which  all  subsequent  writers  will  have  to 
reckon. 

My  thanks  are  due  to  Professor  Edward  Caird,  of  Glasgow 
•University,  at  whose  instance  this  translation  was  undertaken,  for 
many  valuable  suggestions,  and,  not  less,  for  the  stimulus  afforded 
by  hope  of  his  approval ;  to  my  former  student  Miss  Christian 
Brown,  of  Paisley,  whose  assistance  in  minute  and  laborious  revision 
of  the  English  rendering  has  been  simply  invaluable ;  and  not 
least,  to  Professor  Bohm-Bawerk  himself,  who  has  most  patiently 
answered  all  questions  as  to  niceties  of  meaning,  and  to  whose 
criticism  all  the  proofs — and  this  preface  itself — were  submitted. 

The  time  I  have  given  to  this  work  may  excuse  my  suggesting 
that  a  valuable  service  might  be  rendered  to  the  science,  and  a 
valuable  training  in  economics  given,  if  clubs  were  organised, 
under  qualified  professors,  to  translate,  adapt,  and  publish  works 
which  are  now  indispensable  to  the  economic  student. 

1  Quarterly  Journal  of  Economics,  April  1889. 
GLASGOW,  April  1890. 


ANALYTICAL  TABLE  OF  CONTENTS 

INTRODUCTION 

TJie  Problem  of  Interest 

The    phenomenon   of   an    income   flowing    constantly  from  all 

kinds  of  capital,  without  personal  exertion  of  the  owner 
The  conditions  of  solution         ..... 
Tlte  theoretical  must  be  distinguished  from  the  social  and  political 

problem.     Characteristics  of  each    ....  2 

Danger  of  confounding  the  two  ;  its  common  effects        .  .          3-4 

Our  task  is  the  critical  history  of  the  theoretical  problem  .  5 

Preliminary  definitions.     Capital?  a  "  complex  of  produced  means 

of  acquisition "  ....  6 

The  difference  between  National  and  Individual  capital ...  6 

between  Gross  interest  and  Net  interest  ...  7 

between  Natural  and  Contract  (or  Loan)  interest  .  .  *  8 

Interest  as  distinguished  from  Undertaker's  Profit  .  .          8-9 

Limitation  of  the  subject  to  Interest  proper       .  .  .  10 

BOOK  I 

The  Development  of  the  Problem 
CHATTER  I 

THE    OPPOSITION   TO    INTEREST    IN    CLASSICAL    AND    MEDIAEVAL    TIMES 

Loan  interest,  or  Usury,  as  evidently  income  without  labour, 
was  discussed  long  before  Natural  interest,  where  labour  is 
always  present,  and  is  supposed  to  account  for  the  income  .  13-14 

The  first  period — a  rather  barren  one,  extending  to  the  eight- 
eenth century — is  taken  up  with  the  struggle  for  and 
against  usury  ......  14-15 


xxii  ANALYTICAL    TABLE  OF  CON-TENTS 

PAGE 

Dislike  of  interest  shown  in  all  undeveloped  stages  of  industry   .  15 

Hostility  of  the  philosophic  writers       .  .  .  .  16 

Aristotle's  argument,  that  money  does  not  breed  .  .  17 

Thus  far  the  question  is  only  theoretical,  interest  being  recognised 

as  an  established  institution  ....      17-18 

Reaction  under  Christianity ;  victory  of  the  Church  over  temporal 

legislation  ;  prohibition  of  interest .  .  .  .18 

The  subject  treated  theologically  till  twelfth  century,  when  begin 

appeals  to  the  jus  divinum,  jus  humanum,  and  jus  naturals    .  1 9 

The  explanation  of  this ; — the  vexatious  pressure  of  the  prohibi- 
tion on  industry,  and  the  necessity  for  rational  defence  of  it  20 
Stock  arguments  ,6f  this  period — 

(1)  The  barrenness  of  money     .  .  .  .21 

(2)  The  consumability  of  money  (Thomas  Aquinas)          .  22 

(3)  The  Use  transferred  with  the  capital  .  .  23 

(4)  The  selling  of  Time,  a  good  common  to  all    .  .  23 
But  the  prohibition  did  not  apply  to  profit  made  by  personal 

employment  of  capital        .  .  .  .  .24 


CHAPTER  II 

THE    DEFENCE    OF    INTEREST    FROM    THE    SIXTEENTH    TILL    THE 
EIGHTEENTH    CENTURY 

Zenith  of  the  prohibition  in  the  thirteenth  century         .  '    .  25 

The  straggle  of  practical  life.  Direct  exceptions  to  the  prohibi- 
tion ;  evasions  of  it.  The  "  interesse "  .  .26 

The  effect  on  theory.  Compromise  of  the  reformers  with  the 

"  parasitic  profit "  .  .  .  .  .  .27 

Rise  of  direct  opposition  to  the  prohibition        ...  28 

Calvin  rejects  authority,  and  dismisses  the  rational  arguments,  but 

does  not  unreservedly  allow  interest  .  .  .  28-29 

Molinaeus  ;  his  scholastic  review  and  criticism  of  the  canon  argu- 
ments ;  his  conclusions  and  concessions  .  .  .  30-31 

Calvin  and  Molinaeus,  however,  stand  almost  alone  in  the  six- 
teenth century  ...... 

Besold  an  able  follower  of  Molinaeus    .... 

Bacon  sees  in  interest  an  economical  necessity,  but  only  toler- 
ates it  .  .  .  .  .34 

In  the  seventeenth  century  there  is  great  development  of  theory, 
especially  in  the  mercantile  Netherlands.  Grotius  theoretic- 
ally condemns  interest  .....  34 


ANALYTICAL    TABLE  OF  CONTENTS  xxiii 

PAGE 

but  practically  allows  it.  A  few  years  later  the  tide  fairly  turns 

with  Salmasius  .  .  .  .  .  .35 

Salmasius's  argument; — if  the  Commodatum  is  allowable,  so 
also  is  the  Loan.  To  the  objection  founded  on  the  perishable 
nature  of  goods,  he  answers :  (1)  that  such  an  argument 
would  prevent  the  lending  of  perishable  things  even  without 
interest,  and  (2)  that  the  perishableness  is  another  argument 
for  interest  ......  36-37 

Character  of  his  writings          .....      37-39 

His  works  mark  high  water  for  a  hundred  years  .  .  40 

In  Germany  after  the  seventeenth  century  there  is  not  much 

question  about  the  legitimacy  of  interest  .  .  .  41 

Justi  says  nothing  about  it  Sonnenfels,  who  has  nothing  good 

to  say  of  it,  ridicules  the  canon  doctrine  and  the  prohibition  41-42 

In  England  the  prohibition  was  removed  before  the  theoretic 
question  emerged.  Hence  the  only  debated  question  was 
as  to  legal  fixed  rates  of  interest  .  .  .  .  43 

Thus  Culpepper,  Child,  North  ...  44 

Locke  goes  deeper  into  the  subject.  Money,  he  admits,  is  barren, 
but  interest  is  justified ;  for,  owing  to  bad  distribution,  one 
has  land  which  he  cannot  use,  and  another  has  capital,  and 
interest  for  the  one  is  as  fair  as  rent  for  the  other  .  .  45-46 

Locke's  real  importance,  however,  lies  in  the  idea  kept  in  the 
background,  that  all  wealth  is  made  by  labour.  Thus  also 
Steuart  .......  40 

Hume  on  the  connection  between  profit  and  interest       .  .  47 

By  the  time  of  Bentham  (1787)  the  canon  doctrine  is  only  a 

subject  for  ridicule  .....  48 

In  Italy  the  legal  prohibition  was  quite  inoperative        .  .  48 

But  before  the  eighteenth  century  there  appeared  no  theoretical 

defence  of  interest  .  49 

Galiani's  pregnant  idea  (1750).  From  the  analogy  of  bills  of  ex- 
change, he  argues  that  present  sums  of  money  are  worth  more 
than  future  sums  of  similar  amount,  and  that  interest  repre- 
sents the  difference  .  .  .  .  .49 

But  he  ascribes  this  to  the  different  degree  of  their  security,  and 

so  makes  interest  a  mere  insurance  premium  .  .  ^0 

Beccaria.  In  France  legislation  and  theory  held  by  the  canon 

doctrine  long  after  it  was  abandoned  elsewhere.  Pothier  .  51-52 

Fanatical  opposition  of  the  elder  Mirabeau          .  .  •      53-54 

Finally,  Turgot  gave  the  canon  doctrine  its  coup -de -grace. 

Summary  of  the  Me'moire  .....  55-5G 


xxiv  ANALYTICAL    TABLE   OF  CONTENTS 

PAOE 

Critical  retrospect.  The  canon  had  said  that  interest  was  a 
defrauding  of  the  borrower  ;  for  (1)  money  is  barren,  and  (2) 
there  is  no  separate  use  of  it.  The  new  doctrine  said  (1) 
money  is  not  barren  when  the  owner,  employing  it  himself, 
can  make  a  profit  by  it,  and  (2)  there  is  a  use  of  capital 
separable  from  capital  itself  ....  57 

In  short,  it  explained  Loan  interest  from  Natural  interest,  but 

did  not  go  on  to  ask  the  meaning  of  Natural  interest  .  58-59 

All  the  same  it  was  no  small  gain  that  the  question  was  now 
formally  put,  Why  can  a  man,  employing  his  own  capital, 
make  a  profit  ?  .  .  .  .  .  .60 

It  was  not  long  before  a  part  of  employer's  profit  was  seen  to  be 

an  income  sui  generis  .  .  .  .  .60 

CHAPTER-III 

TURGOT'S  FRUCTIFICATION  THEORY 

The  reason  why  Contract  interest  was  first  studied          .  .  61 

Scientific  research  now  replaced  the  outside  motive.  The 

Economists :  Quesnay,  De  la  Riviere  .  .  .  62 

Turgot's  argument — the  possession  of  land  guarantees  rent. 
But  land  may  be  priced  in  capital,  and  so  every  capital  be- 
comes the  equivalent  in  value  of  a  piece  of  land.  Capital 
must  therefore  bear  as  much  profit  as  land  bears  rent ;  other- 
wise all  forms  of  industry  would  be  abandoned  for  agriculture  63-64 

This,  however,  is  arguing  in  a  circle.  Land  is  priced  by  dis- 
counting its  future  uses  ;  calculating  so  many  years'  purchase 
at  the  customary  rate  of  interest.  Rent  and  interest  then  are 
forms  of  the  one  phenomenon  which  we  are  investigating  .  65—69 

CHAPTER  IV 
ADAM    SMITH    AND   THE    DEVELOPMENT    OF    THE    PROBLEM 

Adam  Smith  has  no  distinctive  theory  of  interest  .  .  70 

His  principal  suggestion — its  necessity  as  an  inducement  to  the 

productive  employment  of  capital  .  .  .  .71 

His  contradictory  accounts  of  its  origin  (1)  in  an  increased  value  of 

products  over  the  labour  value,  (2)  in  a  curtailment  of  wage  72,  73 
While  Adam  Smith  is  thus  neutral,  these  suggestions  formed 

the  «erms  of  later  theories  74 


ANALYTICAL    TABLE   OF  CONTENTS  xxv 

PAGE 

The  growth  of  capital  and  the  antagonism  of  capital  and  labour 
soon  made  neutrality  impossible,  and  compelled  discussion  of 
interest  as  income  obtained  without  work  .  .  .  75-76 

Hence  the  appearance  of  a  number  of  interest  theories  .  .  77 

Division  of  the  subject.  The  various  interest  theories  as  answers 
to  the  central  question :  Why  is  Surplus  Value  a  constant 
phenomenon  of  capitalist  production  ?  .  .  78-79 

CHAPTER  V 

THE    COLOURLESS    THEORIES 

Sartorius,   Lueder,   Kraus,    Hufeland,    Seuter,    Politz,    Murhard, 

Schmalz,  Cancrin.  .....      80-81 

Count  Soden  on  interest  as  diverted  from  the  product  of  labour.  82 

Lotz  makes  the  capitalist's  sole  claim  replacement  of  his  expenses ;  83 

but  this  would  not  be  sufficient  inducement  to  the  productive 

employment  of  capital  ;  hence  the  necessity  of  interest          .  84 

Insufficiency  of  this  illustrated  from  rent  ...  85 

Jakob,  Fulda,  Eiselen,  Rau      .  .  .  .  .86 

Eicardo's  account — 

(1)  Of  the  origin  of  interest — the  inducement  to  productive 

employment  of  capital         .  .  .  .87-88 

(2)  Of  the  rate  of  interest.     As  result  of  his  rent  theo'ry, 

profit  and  wage  together  are  determined  by  the 

return  to  the  worst  land  in  cultivation  .  .  89 

But  wages  being  determined  by  the  "  Iron  Law,"  profit 
is  the  remainder.  And  as  more  unfavourable  culti- 
vation is  resorted  to,  the  decreasing  product  leaves 
less  to  profit  .....  90 

But  profit  cannot  disappear,  otherwise  accumulation 
would  cease,  and  wealth  and  population  would  be 
checked  .  .  .  .  .  .91 

In  this  Ricardo  has  neglected  the  constant  causes  Avhich 

prevent  the  absorption  of  profit  by  wage  ;  .  .  92 

for  the  weakening  of  the  motives  of  accumulation 
may  prevent  resort  to  land  which  yields  too  small 
a  profit  .  .  .  .  .  .93 

(3)  Of  the  connection  between  profit  and  value.      Profit  as 

paid  out  of  increased  price.      Inconsistency  of  this 

with  the  "  Labour  principle "  .  .  .  94- -9? 

Torrens,  arguing  against  Malthus,  declares  profit  a  surplus,  IK  t 

a  cost  ;  but  says  nothing  as  to  its  origin      .  .  .  96— f>"' 


xxvi  ANAL  YTICAL    TABLE   OF  CONTENTS 

PAGE 

M'Culloch   finds   that   value   is   determined   by  labour   alone, 
capital  being  only  the  product  of  previous  labour  ;  includes 
profit  among  costs ;  and  at  the  same  time  defines  profit  as  a 
surplus  ....  ...     97-98 

His  absurd  illustrations  of  the  cask  of  wine ;     .  .  .99 

of  the  two  capitals — in  leather  and  wine ;  of  the  timber.     General 

untrustworthiness  ....  100-102 

M'Leod   sees  no  problem  ;  considers  profit  self-explanatory  and 

necessary  .  .  .  .  .  .103 

His  faith  "in  the  formula  of  supply  and  demand  .  .          104 

Gamier.      Canard;  " necessary "  and  " superfluous "  labour         .          105 
Possible  agreement  of  Canard  with  Turgot's  theory         .  .          106 

Droz  makes  saving  an  element  of  productive  power,  but  devotes 

his  attention  chiefly  to  Contract  interest      .  .  .          107 


BOOK   II 

The  Productivity  Theories 
CHATTER   I 

THE    PRODUCTIVE    POWER   OF    CAPITAL 

Apparent  simplicity  of  the  new  explanation  that  Capital  produces 

its  own  interest     .  .  .  .  .  .111 

Real   ambiguity  of   the  word    "productive,"   as   («)   producing 

more  goods,  (ft)  producing  more  value  .  •  .          112 

(a)  Physical  Productivity ;  Reseller's  illustration  .          113 

(6)  Value  Productivity  ;  its  two  possible  meanings  .          113 

Its  usual  meaning — Capital  produces  more  value  than  it  has  in 

itself         .  .  .  .  .  .  .114 

Conspectus  of  the  four  interpretations  of  "  Capital  is  productive"          114 

Danger  of  confusing   these.     The  task   assigned   to   productive 

power  by  the  Productivity  theories  .  .  .          115 

Restatement  of  the  problem  as  essentially  a  problem  of  Surplus 

Value       .  .  .  .  .  .  .116 

Surplus  Value  may  conceivably  be  explained  from  productive 
power  by  ascribing  to  capital  (1)  direct  creation  of  value  ;  (2) 
direct  creation  of  goods  possessing  surplus  value,  this  value 
being  assumed  as  self-explanatory;  (3)  direct  creation  of 
goods  and  indirect  creation  of  surplus  value  .  117—118 


ANALYTICAL   TABLE   OF  CONTENTS  xxvii 

PAGE 

Corresponding  to  these  explanations  are  three  groups  of  theories  : 
(1)  The  Naive  Productivity  theory  ;   (2)  the  Indirect  Pro- 
ductivity theories ;  (3)  the  Use  theories          .  118-119 

CHAPTER   II 

THE    NAIVE    PRODUCTIVITY    THEORIES 

J.  B.  Say  their  founder  .  .  .  .  .120 

Nature,  Labour,  and  Capital  are  the  factors  of  wealth,  and,  like 

rent  and  wage,  interest  is  the  price  of  a  Productive  Service  121-122 

Adapting  the  problem  to  Say's  terms  we  get  two  answers :  (1) 
Capital  directly  creates  surplus  value,  and  takes  that  as  its 
payment  (thus  making  it  a  production  problem) ;  (2)  the 
Service  must  be  paid  and  prices  must  rise  to  cover  the 
payment  (thus  a  distribution  problem)  .  .  .  123-25 

The  development  after  Say       .  .  .  .  .126 

Schon  and  Riedel  consider  it  self-evident  that  Capital  must 

produce  a  "rent"  or  surplus  .  .  .  .127 

Roscher,  wavering  between  Natural  and  Loan  interest,  co- 
ordinates the  Productivity  and  the  Abstinence  theory  .  128-30 

In  France,  Leroy-Beaulieu,  in  Italy,  Scialoja,  represent  this 

theory  .  .  .  .  .  .  .131 

Criticism.     Division  of  the  theory  into  its  two  forms     .  .          132 

The  first  form — that  capital  directly  produces  value — rests  on  the 
mere  empirical  observation  that  the  employment  of  capital 
is  followed  by  surplus  value  .  .  .  .133 

But  to  find  the  origin  of  value  in  production  involves  an 

erroneous  theory  of  value  .  .  .  .  .134 

For  value  corresponds  with  costs  only  as  goods  are  useful  and 

scarce;  .......  135 

and  though  production  turns  out  valuable  goods,  it  is  not  pro- 
duction that  gives  them  value — it  is  a  cause,  not  the  cause  .  136 

An  application  :  if  value  does  not  arise  in  production,  the  other 

factor  of  production,  labour,  cannot  confer  it  .  .  137 

The  second  form — that  the  increased  product  must  contain  a 
surplus  of  value  over  the  capital  consumed — is  by  no  means 
self-evident  .  .  .  .  .  .138 

Why  should  not  the  value  of  the  capital  rise  to  the  value  of  its 

product,  and  surplus  value  vanish  ?  .  .  .139 

Summary  :  failure  of  this  theory  in  either  form  to  explain  Value, 

and  therefore  Surplus  Value  .  .  .  .140 


xxviii  ANALYTICAL    TABLE   OF  CONTENTS 

PAGE 

It  connects  the  undeniable  fact  that  capital  is  productive,  and 
that  products  of  capitalist  industry,  as  a  rule,  have  value, 
with  the  phenomenon  of  surplus  value  which  also  appears 
in  capitalist  production,  and  capital  is  made  the  cause  of 
surplus  value  .  .  .  .  .  .141 

CHAPTER  III 

THE    INDIRECT    PRODUCTIVITY    THEORIES 

These  theories  do  not  assume  as  self-evident  that  surplus  value 
is  bound  up  with  increased  quantity  of  products,  but  give 
reasons  why  it  should  be  so.  The  conflicting  accounts  of 
these  reasons,  however,  necessitate  individual  statement 
and  criticism  .  .  .  .  .  .142 

Lauderdale  finds  the  source  of  profit  in  the  power  of  capital  to 

supplant  labourers  and  appropriate  their  wage  .  143-144 

The  familiar  fact  of  such  profit  being  usually  less  than  such 

wages  he  explains  by  reference  to  competition  .  144-145 

But  the  share  thus  proved  to  go  to  capital  is  not  interest  at  all, 
but  gross  return  to  capital ;  and  no  proof  is  offered  that  net 
interest  must  remain  after  deduction  of  tear  and  wear  146-147 

True,  if  there  is  no  saving  of  labour  there  is  no  profit ;  but  it  is 

as  true  that  if  there  is  no  labour  there  is  no  profit  .  .  148 

Malthus  correctly  states  the  nature  of  profit  as  the  difference 
between  the  value  of  the  advances  and  the  value  of  products, 
but  omits  to  ask  the  cause  of  this  constant  difference  .  149 

His  most  important  contribution  to  the  subject  is  the  formal 

inclusion  of  profit  among  the  Costs  of  Production —  .  150 

a  crude  recognition  of  the  fact,  afterwards  recognised,  that  there 

is  another  sacrifice  in  production  besides  labour  .  .  151 

He  does  not,  however,  measure  the  rate  of  interest  by  the  amount 
of  sacrifice,  but  by  the  level  of  wage  on  the  one  side,  and 
the  level  of  prices  on  the  other  ;  .  .  .  152 

Not  asking  why  there  is  a  constant  difference  between  these  two, 
and  having,  at  the  same  time,  no  better  explanation  of  the 
level  of  price  than  Supply  and  Demand  .  .  .153 

Carey,  a  confused  and  blundering  writer  .  .  154-155 

His  illustration  of  the  axes       ....  156—158 

In  which  he  confuses  (1)  gross  use  with  net  use;  (2)  the  cap- 
italist's proportion  of  the  total  return  to  capitalist  production 
with  the  rate  of  interest  ;  i.e.  confounds  the  return  to  capital 
with  capital  itself  .  .  .  .  159-160 


Peshine   Smith  repeats  all  Carey's  blunders   with  more    than 

Carey's  deliberation  .  .  .  •.  161-164 

Tinmen,  a  most  careful  investigator      .  .  .  .  .          164 

His  genetical  account  of  the  growth  of  capital,  origin  of  interest, 

and  rate  of  interest  .  .  .  .  165-167 

In  which  we  find  (1)  labour,  assisted  by  capital,  obtaining  a 
greater  amount  of  products  ;  (2)  this  surplus  composed  of  net 
interest  and  replacement  of  capital  consumed  ;  (3)  this  excess 
production  falling  to  the  capitalist ;  and  (4)  this  plus  of 
products  regularly  possessing  a  value  greater  than  that  of  the 
real  capital  consumed  .  .  .  .  168-169 

But  no  proof  is  offered  for  this  last  proposition,  which  assumes 
that  capital  has  the  power  to  reproduce  its  own  value  and 
leave  something  over  .  .  .  .  .169 

Now  (1)  why  should  not  the  value  of  capital  rise  till  it  becomes 
equal  to  the  value  of  its  products ;  or  (2)  why  should  not 
competition  of  capitals  increase  till  the  claim  of  capital  is 
reduced  to  its  simple  replacement  ?  .  .  .  170-171 

Strasburger,  writing  in  reply  to  Marx,  defines  profit  as  payment 
for  natural  powers,  which,  while  in  themselves  gratuitous, 
are  made  available  to  production  by  capital  only  .  173-174 

But  in  actual  life  how  does  the  capitalist  get  paid  for  natural         \ 
powers  ?     By  selling  the  services  of  his  capital  at  a  higher 
price  than  the  price  of  the  labour  embodied  in  the  capital  ..          175 

This  in  three  ways  :  (1)  as  Undertaker,  getting  a  gross  return 
greater  than  the  value  of  the  capital  consumed  ;  (2)  as  Hirer- 
out,  getting  a  payment  greater  than  the  labour  value  ;  (3)  as 
Seller  of  the  capital  itself,  including  all  its  services  .  .  176 

But  in  this  latter  case  also  the  natural  powers  here  made 
available  will  raise  the  value  of  the  capital  above  the 
payment  of  the  labour  which  produced  it.  But  if  capital 
value  rises  proportionally  with  the  value  of  its  services 
(products),  there  is  no  interest,  although  natural  powers  have 
been  paid  for.  If,  on  the  other  hand,  competition  presses 
down  the  capital  value  to  the  value  of  the  labour  embodied, 
it  is  evident  there  can  be  no  claim  for  natural  powers  .  177-178 

All  then  that  Strasburger  proves  is  that  command  over  natural 
powers  may  increase  the  gross  return  to  capital  above  what 
was  paid  to  produce  the  capital.  But  whatever  raises  the 
value  of  products  will  raise  the  value  of  capital,  and  no 
explanation  is  thereby  given  of  the  constant  difference 
between  capital  and  products,  which  is  interest  178-179 


xxx  ANALYTICAL    TABLE   OF  CONTENTS 

PAQB 

Summary :  interest  is  the  difference  between  the  minuend 
(product)  and  the  subtrahend  (capital  consumed),  and,  as  the 
value  of  capital  is  bound  up  with  the  value  of  its  products, 
productive  power  can  only  affect  the  one  as  it  affects  the 
other,  leaving  the  difference  between  them  unchanged,  and 
the  question  of  interest  untouched  .  .  .  179-180 


BOOK   III 

The  Use  Theories 
CHAPTER  I 

THE    USB    OF   CAPITAL 

The  growing  recognition  of  the  identity  betweeti  value  of  product 
and  value  of  means  of  production  was  bound  to  suggest  that 
something  had  been  overlooked  among  the  sacrifices  of 
production  .  .  .  .  .  .185 

The  new  theory  found  this  in  the  Use  as  distinct  from  the 

Substance  of  capital  .  .  .  .  .186 

Relation  of  this  to  the  Productivity  theories      .  .  186-187 

CHAPTER  II 

HISTORICAL    STATEMENT 

Say's  ambiguous  account  of  the  Services  of  capital          .  188-189 

Storch's  perverted  explanation  .  .  .  190-191 

Nebenius's  eclectic  suggestions .  .  .  .  .          192 

Mario's  brief  epitome  of  Say    .  .  .  .  .193 

Hermann  elaborates  the  fundamental  conception  of  the  inde- 
pendent   "  use "    of  goods.      Distinguishing    first    between 
durable  and  transitory  goods,  he  points  out  that  the  former, 
so  long  as  they  last,  have  a  use  which  may  be  conceived 
as  a  good  in  itself,  and  may  obtain  an  exchange  value,  called 
interest     .  .  .  .  .  .  .194 

But  goods  of  transitory  material,  when  combined  and  trans- 
formed by  manufacture  into  durable  goods,  may  also  acquire 
this  use.  On  this  capability  of  affording  an  independent  use 
he  bases  his  conception  of  capital  .  .  .  .195 


ANALYTICAL    TABLE   OF  CONTENTS  xxxi 

PAGE 

In  production,  besides  the  sacrifices  of  existent  wealth  (material 
and  tools),  and  besides  labour  (manual  and  intellectual),  there 
is  thus  another  sacrifice,  the  Uses  of  fixed  and  floating  capital 
over  the  period  of  production.  Immediately  that  any  form 
of  capital  is  engaged  in  production,  the  disposal  of  it  in  any 
other  way  is  made  impossible  ;  it  enters,  with  its  exchange 
value,  into  the  product,  and  is  suspended  till  the  sale  of  the 
product.  Thus  what  is  paid  for  in  the  product  is  not  simply 
the  renunciation  of  the  immediate  consumption  of  wealth, 
but  a  new  use,  consisting  in  the  holding  together  of  the 
technical  elements  of  the  product  .  .  .  196-198 

Superiority  of  this  to  Say's  outline.     Some  inconsistencies  .          199 

Hermann's  views  on  the  rate  of  profit.  A  product  ultimately  is 
a  sum  of  labours  and  uses  of  capital.  Thus  all  exchange  is 
an  exchange  of  labours  and  uses  against  other  labours  and 
uses,  either  direct  or  embodied  in  products.  The  rate  of 
profit,  then,  depends  on  the  amount  of  labours  and  uses 
obtainable  for  uses  alone.  If  capital  increases  in  amount 
more  uses  are  offered,  and  the  exchange,  value  of  use  against 
use  is  unchanged ;  but,  if  labour  is  stationary,  the  exchange 
value  of  uses  sinks  in  comparison  with  labour,  and  the  rate  of 
profit  falls.  If  capital,  again,  increases  in  productiveness,  the  . 
result  is  the  same,  except  that,  f>r  their  reduced  profits,  the 
capitalists  receive  more  means  of  enjoyment  than  they  formerly 
obtained  for  their  high  profit  .  .  .  200-201 

Thus  increasing  productiveness  lowers  interest  .  .  .          202 

This  application  of  the  Use  theory  to  explain  the  rat:  of  interest 
is  certainly  incorrect  What  his  argument  proves  is  the 
relation  between  total  profit  and  total  wage  ;  not  between 
profit  and  parent  capital  ....  202-204 

Hermann's  views  on  productivity          .  .  .  .204 

Bernhardi,  Mangoldt,  Mithoff  .....          205 
Schaffle   has  two    conceptions  of  Use  :   in   his   Gesellschaftlidie 
System,  for  the  most  part,  we  find  the  subjective  conception, 
which  connects  it  with  the  undertaker ;       .  .  .          206 

in  his  Ban  imd  Leben,  the  objective  uses  are  "  functions  of  goods  "         207 
Knies,  although  at  one  time  adopting  Galiani's  conception  of 

interest  as  part  equivalent  of  parent  loan,    .  .  .          208 

of  late  years,  in  Geld  und  Kredit,  conceives  of  the  Use  as  quite 
distinct  from  the  good  itself,  the  ft.  bearer  of  the  Use,"  and 
describes  it  as  obtaining  value — as  all  goods  obtain  value 
— by  satisfying  human  needs  .  .  .  .209 

c 


xxxii  ANALYTICAL    TABLE  OF  CONTENTS 

PAGE 

Menger,  who  represents  the  highest  point  of  the  Use  theory, 
bases  it  on  a  complete  theory  of  value.  His  great  law  :  the 
value  of  goods  of  higher  rank  (means  of  production)  is  deter- 
mined by  the  value  of  goods  of  lower  rank  (products)  209-211 

How  then  is  the  value  of  the  product  always  higher  than  the 

value  of  the  means  of  production  ? .  .  .  .  211 

His  answer  :  the  production  process  requires  the  "  disposal "  over 
capital  for  periods  of  time.  This  disposal  is,  economically, 
the  Use  of  capital ;  it  enters,  as  an  economic  good,  into  the 
value  of  the  product,  and  is  the  source  of  value.  Interest  is 
thus  a  distribution,  not  a  production  problem  .  .  212 

CHAPTER  III 

PLAN    OF    CRITICISM 

The  theses  to  be  proved  are :  (1)  that  there  is  no  independent 
use  of  capital  as  assumed ;  (2)  that,  if  there  were  such  a  use, 
it  would  not  explain  interest  .  .  .  .214 

CHAPTER  IV 

THE    USE    OF   CAPITAL    ACCORDING    TO   THE    SAY-HERMANN    SCHOOL 

Uncertainty  in  the  various  accounts  given  of  the  use.  Defin- 
itions of  Say,  Hermann,  Knies,  Schaffle  .  .  .  216 

These  definitions,  in  correspondence  with  popular  usage,  are 
divisible  into  two  conceptions — a  subjective  and  an  objective. 
Obviously  it  is  the  latter  alone  which  corresponds  with  the 
character  of  the  Use  theory  .  .  .  .217 

What  then  is  the  objective  use  of  goods  ?  .  .  .          218 


THE  TRUE  CONCEPTION  OF  THE  USE  OF  GOODS 

The  character  of  material  "goods,"  as  distinct  from  material 
"  things,"  is  that,  in  them,  the  working  of  the  natural  powers 
inherent  in  all  matter  permits  of  being  directed  to  human 
advantage  .  .  .  .  .  .219 

The  function  of  goods,  then,  consists  in  the  forth-putting  of  their 
available  energy,  and  the  use  of  goods  consists  in  the  receiv- 
ing of  useful  results  from  this  forth-putting  of  energy  .  220 


ANALYTICAL    TABLE  Of  CONTENTS  xxxiii 

PAGE 

This  is  strictly  an  economic  as  well  as  a  physical  conception  ;  its 

application  in  regard  to  "ideal"  goods  .  .  221-222 

Material  Services  (Nutzleistungeri)  an  appropriate  name  for  this 

function  of  goods  ......  223 

Inferences  from  this  conception.  Every  economic  "  good  "  must 
be  capable  of  rendering  material  services,  and  ceases  to  be  a 
good  on  the  exhaustion  of  this  capability  .  .  .  224 

But  the  number  of  services  which  a  good  may  render  varies. 
Perishable  goods  exhaust  themselves  at  a  single  use  ;  durable 
goods  only  by  successive  acts  or  continuous  service  .  .  225 

In  virtue  of  this  the  single  use,  or  definable  period  of  service, 
obtains  economic  independence  apart  from  the  body  of  the 
good,  which  remains  capable  of  further  uses  .  .  226 

Finally,  as  material  services  constitute  the  economic  substance  of 
goods,  it  follows  that  the  economic  essence  of  the  transfer  of 
a  good  is  the  transfer  of  all  its  services,  and  that  the  value 
of  a  good  contains  the  value  of  all  its  services  .  .  227 

CHAPTER  VI 

CRITICISM    OP    THE   SAY-HERMANN    CONCEPTION 

The  Use  of  capital,  according  to  this  conception,  is  not  identical 
with  what  we  call  Material  Services.  Its  use  is  the  basis 
of  net  interest  ;  ours  of  gross  interest  (in  the  case  of  durable 
goods)  or  the  basis  of  the  entire  capital  value  (in  the  case  of 
perishable  goods)  .  .  .  .  .  .228 

No  use  of  goods  other  than  their  Material  Services  is  conceivable          229 

either  in  durable  goods  (illustration  of  the  mill)  or  in  perishable 

(illustration  of  the  coals)  .  .  .  .  .230 

This  will  best  be  proved  by  showing  that  any  other  kind  of  use 
(1)  is  an  unproved  assumption,  and  (2)  leads  to  untenable 
conclusions  .  .  .  .  .  .231 

CHAPTER  VII 

THE    INDEPENDENT    USE  :      AN    UNPROVED    ASSUMPTION 

"  In  all  the  reasoning  by  which  the  Use  theorists  thought  they 
had  proved  the  existence  of  this  Use,  an  error  or  misunder- 
standing has  crept  in."  Say's  services  productifs  are  nothing 
more  than  our  Material  Services,  and  cannot  be  the  basis  of 
net  interest  ...... 

So  also  Schaffle's  "  functions  "  of  goods 


xxxiv  ANALYTICAL   TABLE  OF  CONTENTS 

PAGE 

Hermann  introduces  his  independent  use  when  speaking  of  dur- 
able goods — the  use  which  does  not  exhaust  the  good  that 
renders  it,  and  is  accordingly  capable  of  independent  valua- 
tion (note  that  this  is  a  gross  use,  and  its  payment  is  not 
interest)  .......  233 

By  analogy  he  finds  a  similar  use  in  perishable  goods,  technically 

transformed  into  durable  goods  .  .  .  .234 

But  this  analogy  does  not  hold  :  durable  goods  are  immediately 
"  used  "  when  successively  giving  forth  a  part  of  their  content ; 
perishable  goods  in  each  immediate  use  exhaust  their  entire 
content,  and  what  Hermann  calls  a  durable  use  in  this  latter 
case  is  a  mediate  use  .  .  .  .  .235 

Thus  Hermann  has  drawn  his  parallel  between  the  immediate  use 

of  a  durable  good  and  the  mediate  use  of  a  perishable  good  236-238 

Kniea  goes  carefully  into  the  question  of  the  existence  of  an 

independent  -use ;  .  .  239 

finds  that  there  are  economical  transfers,  where  the  intention  is 
to  transfer  a  use  and  retain  the  good  that  bears  the  use ;  and 
inquires  if  this  does  not  hold  also  in  the  case  of  fungible 
goods  .  .  .  .  .  .  .  240 

His  illustration  of  the  loan  of  corn        .  .  .  .241 

Where,  by  using  Nutzung  in  a  double  sense,  he  actually  assumes 
the  very  point  at  issue — that  there  can  be  a  use  (Nutzung)  of 
grain  separate  from  its  consumption  (Verbrauch)  .  242-244 

Thus  all  the  Use  theorists  first  allude  to  the  Material  Services  of 
capital,  then  note  the  successive  services  of  durable  goods  as 
obtaining  value  independent  of  the  good  itself  (the  sum  of 
the  remaining  services),  and  end  by  assuming  a  use  and 
independent  value  in  all  goods,  outside  and  independent  of 
the  use  and  value  of  the  (undiminished)  good  from  which 
they  come  ......  245 

CHAPTER  VIII 

THE    INDEPENDENT    USE  :     ITS    UNTENABLE    CONCLUSIONS 

The  usual  assumption  of  this  theory  is  the  existence  of  a  gross 
Nutzung  (basis  of  hire)  and  a  net  Niitzung  (basis  of  interest). 
Yet  Nutzung  is  always  taken  as  synonymous  with  Gebrauch  .  247 

But  it  is  impossible  to  think  of  two  simultaneous  uses  in  every 
act  by  which  a  good  renders  its  material  services.  If,  then, 
the  'name  of  Use  or  Nutzung  is  rightly  given  to  the  gross  iise, 
what  is  this  net  use  ?  248-249 


ANALYTICAL   TABLE   OF  CONTENTS  xxxv 

PAGE 

If  it  exists,  it  must  be  part  of  the  gross  use,  and  interest  is  paid 
for  something  contained  in  the  gross  use.  Now  the  gross  use 
of  a  meal  is  its  consumption.  But  if  we  repay  the  meal  on 
the  moment  of  its  consumption,  we  pay  no  interest ;  we  only 
pay  interest  for  the  delay  in  replacing  the  meal.  That  is, 
we  pay  for  something  not  contained  in  the  gross  use  250-251 

Further  absurdities  involved    .  .  .  .  .251 

Summary  of  what  has  been  proved       .  .  .  .252 

CHAPTER  IX 

THE    INDEPENDENT    USE  :      ITS    ORIGIN    IN    LEGAL   FICTION 

The  need  of  fiction  in  jurisprudence     .  .  .  .253 

The  first  fiction  here — -of  the  identity  between  fungible  goods  lent 

and  those  returned  .....  254 

The  second  fiction — that  the  goods  replaced  had  themselves  been 
used  and  not  consumed  ;  hence  usura,  a  durable  use  obtained 
from  all  goods  .....  254-255 

Under  the  attack  of  the  canonists  on  interest  generally  .  .         255 

the  fiction  attained  a  new  importance  as  apparently  affording 
the  sole  defence  of  interest,  and,  thanks  to  Salmasius,  the 
fiction  was  proclaimed  a  fact  .  .  .  .256 

Modern  Political  Economy  turned  this  practical  justification  of 

interest  into  a  theoretical  one,  and  hence  the  Use  theory  .  256 

The  mistake  has  lain  in  considering  that  £100  replaced  now,  is 
the  full  equivalent  of  .£100  lent  a  year  ago,  and  interest  an 
extra  payment  .....  257-258 

The  true  conception  of  the  loan:  it  is  a  real  exchange  of  present 
goods  against  future  goods ;  the  capital  replaced  pltis  interest 
is  the  full  equivalent  of  the  capital  loaned  .  .  .  259 

CHAPTER  X 
MENGER'S  CONCEPTION  OF  USE 

"  Disposal  over  goods  for  a  period  of  time,"  as  an  independent 

good  .......  260 

Its  indirect  proof :  the  existence  of  surplus  value  not  otherwise 

accounted  for  ......  261 

Insufficiency  of  this  :  (l)  surplus  value  can  be  explained  other- 
wise ;  (2)  "  disposal "  for  a  period  of  time  proved  to  have 
no  existence  beyond  the  capital  value  of  goods  262-263 


xxxvi  ANALYTICAL    TABLE  OF  CONTENTS 

CHAPTER  XI 

FINAL    INSUFFICIENCY    OF    THE    USE    THEORY 

FADE 

Even  if  the  independent  use  were  admitted,  it  would  not  explain 
interest  For  the  explanation  of  surplus  value  as  caused  by 
a  new  element,  the  use  of  capital,  necessarily  assumes  that 
the  value  of  capital  in  itself  does  not  contain  the  value  of 
this  use.  This,  however,  is  disproved  by  the  familiar  fact, 
that  if,  in  selling  a  commodity,  any  of  its  future  uses  are 
retained,  the  capital  value  of  the  commodity  is  reduced  264 

Thus  the  use  of  capital  is  contained  in  the  loan  of  the  capital, 

and  cannot  explain  a  surplus  value  greater  than,  that  capital  265 


BOOK  IV 

The  Abstinence  Theory 

CHAPTER  I 

SENIOR'S  STATEMENT  OF  THE  THEORY 

The  Labour  Principle  and  its  difficulties  in  accounting  for  interest. 
Is  interest  a  wage  for  labour,  or  is  it  a  cost  of  production  along- 
side of  labour  ?      .  .  .  .  .  269-270 
Foreshadowings  of  the  theory  in  Nebenius  and  Scrope                 .          271 
Senior.     Abstinence  from  unproductive  use  of  wealth  a  third 
element  in  production.     Like  labour  and  natural  agents,  it 
enters  into  the  costs  or  sacrifices  of  production,  and  demands 
compensation        .              .              .              .                             272-273 

CHAPTER  II 

CRITICISM    OF    SENIOR 

Pierstorffs  estimate  much  too  severe     .  .  .275 

Lassalle  notwithstanding,  the  very  existence  of  capital  requires 
postponement  of  immediate  consumption,  and  this  is  con- 
sidered in  price  of  products  which  cannot  be  obtained  with- 
out postponement  .  .  .  .  .  .276 

Yet  interest  and  sacrifice  by  no  means  invariably  correspond       .          277 
Principal  defect  of  Senior's  theory  :  that  he  represents  interest  as 

an  independent  sacrifice  in  addition  to  labour-sacrifice  .          278 


ANALYTICAL    TABLE   OF  CONTENTS  xxxvii 

PAGE 

A  concrete  example :  a  rustic,  choosing  to  fish  instead  of  shoot 
or  gather  fruit,  may  estimate  his  sacrifice  in  terms,  either  of 
the  labour  undergone,  or  the  gratification  intermitted  .  278 

It  is  the  same  if,  instead  of  fishing,  he  devotes  his  labour  to 
obtain  future  results  ;  he  cannot  calculate  the  sacrifice  of 
labour  in  addition  to  the  sacrifice  of  abstinence  .  .  279 

But  must  choose  one  or  the  other  mode  of  calculation    .  .          279 

This  double  calculation,  however,  is  made  by  Senior      .  .          280 

According  to  his  theory,  the  sacrifice  involved  in  a  day's  planting 
of  potatoes  is  a  day's  labour  plus  a  year's  abstinence,  while  a 
day's  harvesting  of  the  same  involves  the  sacrifice  of  a  day's 
labour  only.  But  if  the  potatoes  I  sowed  yesterday  are 
eaten  by  deer  overnight,  is  my  sacrifice  a  day's  labour  plus 
an  infinite  abstinence  ?  .  .  .  281-282 

Speciousness  of  the  argument.  The  misleading  element  is  the 
consideration  of  time.  Time  is  not  a  second  independent 
sacrifice,  but  it  determines  the  amount  of  the  one  sacrifice 
actually  made.  E.g.  sacrifice,  in  the  majority  of  economical 
cases,  is  estimated,  not  by  (positive)  pain,  but  by  (negative) 
renunciation  of  alternative  enjoyments  .  .  .  282 

Not  so,  however,  as  regards  the  sacrifice  of  labour,  where  some 
amount  of  positive  pain  is  always  present.  Yet,  as  a  rule,  in 
civilised  communities  the  methods  of  labour  are  so  various 
that  sacrifice  is  not  estimated  by  its  pain,  but  by  its  alterna- 
tive results.  Now,  of  these  results  some  are  immediate,  some 
take  time  ;  the  attraction  of  a  present  over  a  future  result  of 
labour,  increases  the  estimate  of  the  sacrifice  made  by  those 
who  devote  themselves  to  the  distant  result.  The  sacrifice  in 
terms  of  labour  is  the  same;  in  terms  of  alternative  results 
it  is  calculated  by  the  greater  of  the  alternatives  intermitted  283-285 
Reasons  for  the  popularity  of  this  theory.  Cairnes,  Cherbuliez, 

Wollemborg,  Dietzel  ....  286-287 

CHAPTER  III 

BASTIAT'S  STATEMENT 

Delay  or  Privation  as  a  service  demanding  payment       .  .          288 

His  statement  inferior  to  Senior's  in  two  respects — 

(1)  As  confined  to  Contract  interest,  in  the  course  of  which 

he  seems  to  suggest  that  the  sacrifice  spoken  of  is  the  sac- 
rifice of  the  productive  use,  not  the  postponement  of  needs  289-290 

(2)  In  confounding  interest  with  replacement  of  capital        291-293 


xxxviii  ANALYTICAL    TABLE   OF  CONTENTS 

BOOK  V 

The  Labour  Theories 

THESE  THEORIES  AGREE  IN  EXPLAINING  INTEREST  AS  WAGE  OP  THE 
CAPITALIST'S  LABOUR 

The  English  Group 

PAGE 

Traces  interest  to  that  labour  which  produces  capital     .  .          297 

James  Mill  starts  with  the  proposition  that  labour  alone  regulates 

value        .  ....          297 

And  defines  profit  as  wage  of  indirect  labour     .  .  .          298 

But  as  the  labour  formative  of  capital  has  been  already  paid,  this 
must  be  an  extra  wage,  and  raises  the  question  why  such 
mediate  labour  should  be  more  highly  paid  than  immediate  .  299 

The  French  Group 

Courcelle's  conception  of  the  Labour  of  Saving  :  the  conservation 
of  capital  requires  effort  of  intellect  and  will,  which  is  so  far 
painful,  and  the  return  to  this  labour  is  interest  .  300—301 

Not  to  speak  of  this  being  merely  another  way  of  putting  Senior's 
theory,  what  correspondence  is  there  between  the  painful  ex- 
ertion of  intellect  and  will  and  the  so-called  wage  ?  302 

And  if  interest  is  explained  by  these  painful  exertions,  why  does 

the  borrower  not  get  interest  instead  of  paying  it  ?  .  303-304 

Cauwes,  an  eclectic  follower  of  Courcelle  .  .  304-305 

The  German  Group 

Its  origin  in  a  remark  of  Rodbertus       .  .  .  305-306 

expanded  by  Schaffle  into  the  statement  that  interest  is  a 
remuneration  for  the  office,  now  filled  by  private  capitalists, 
of  binding  together  production  processes  by  means  of  capital  307 

Wagner  characterises  the  capitalist's  saving  and  disposing  activi- 
ties as  labours,  and  constitutive  elements  of  value  .  .  308 

It  is  difficult  to  know  whether  these  Katheder  Socialists  mean 
to  give  a  theoretical  explanation  or  a  socio-political  justifica- 
tion of  interest  .....  308 

Difference  between  the  two  illustrated  by  a  parallel  case  ;  land 
rent  could  not  be  explained  by  the  original  exertion  of  labour 
on  the  land  309 


ANALYTICAL   TABLE  OF  CONTENTS  xxxix 

PAGE 

but  might  be  justified  as  a  political  measure  of  expediency  310 

Similarly,  the  permission  of  interest  may  possibly  be  the  most 
effective  means  to  the  accumulation  and  employment  of  national 
capital,  and  this  may  be  a  sound  reason  for  its  maintenance 
by  society,  but  the  capitalist's  "  labour  "  gives  no  economic 
explanation  of  what  is,  obviously,  an  income  from  ownership  311 
It  is  impossible  to  doubt  that  interest  is  not  a  wage  for  labour  .  312 


BOOK  VI 

The  Exploitation  Theory 
CHAPTER  I 

HISTORICAL   SURVEY 

The  essence  of  the  theory — the  exploitation  from  the  labourer, 
by  means  of  the  wage  contract,  of  the  wealth  which  he 
exclusively  produces  .  .  .  .  .315 

An  inevitable  consequence  of  the  Labour- value  theory   .  .          316 

Preceding  developments — the  acceptance  of  the  Ricardian  theory 

and  the  spread  of  capitalist  production         .  .  .          317 

Sismondi,  the  writer  of  a  transition  period,        .  .  .          318 

states  its  main  propositions,     .  .  .  .  .          319 

Vnt,  illogically,  justifies   interest   as  founded   on    the  original 

labour  which  produces  capital         .  .  .  .320 

Proudhon :  all  value  being  produced  by  labour,   the  labourer 
has  a  natural  claim  to  his  entire  product,  but  this  he  ignor- 
antly  gives  up  for  a  wage   .....          321 
and  cannot  buy  even  his  own  product  at  what  it  cost  him  .          322 

Rodbertus,  a  profound  scientific  investigator       .  .  .          322 

Lassalle,  the  most  eloquent  but  least  original     .  .  .          323 

Marx,  the  most  important  theorist  after  Rodbertus         .  .          323 

Many  writers  adopt  the  Exploitation  theory,  but  stop  short  at  its 

consequences,  as  Guth  and  Duhring  .  .  .324 

Others  ad.   its  ideas  eclectically  to  their  other  theories,  as  James 

Mill  and  Schaffle  .....          325 

The  Katheder  Socialists,  again,  accept  the  proposition,  Labour  is 
the  sole  source  of  value — a  proposition  which,  has  had  a 
singular  history  in  economic  theory  .  .  .  325 

Plan  of  criticism  326-327 


xl  ANALYTICAL   TABLE  OF  CONTENTS 

CHAPTER  II 

RODBERTUS 

PAGE 

His  starting-point :  that  goods,  economically  considered,  are  the 

products  of  labour  alone     .  .  .  .  .          328 

The  labourers  accordingly  have  a  just  claim  to  the  whole  product, 

or  its  value  ......         329 

But  in  the  present  system  they  receive  only  a  part,  the  remainder 

going  as  rent  (including  land-rent,  and  profit)  .  .          330 

Rent  owes  its  existence  to  two  facts  :  (1)  that,  thanks  to  the  divi- 
sion of  labour,  each  worker  can  produce  a  surplus ;  (2)  that 
the  indispensable  conditions  to  labour — land  and  capital — are 
private  property,  this  necessitating  a  wage  contract,  which 
virtually  restores  the  original  condition  of  labour,  slavery  .  331 

Thus  all  rent  is  exploitation,  and  under  the  iron  law  of  wages 

its  amount  increases  with  the  productivity  of  labour  .          332 

His  confused  statement  of  the  division  of  amount  exploited  be- 
tween land-rent  and  profit  ....  333-36 

Nevertheless  Rodbertus  would  not  abolish  rent  .  .          336 

and  would  regard  it  as  the  salary  for  a  social  function    .  .          337 

Criticism :  the  first  proposition,  that  all  goods,  economically 
considered,  are  products  of  labour  alone  (suggesting  the 
question,  What  is  meant  by  "  economically  considered  ?")  .  337 

is  false,  as  proved  by  the  fact  that  purely  natural  goods,  if  scarce, 

have  economic  value          .  .  .  .  .338 

The  argument  he  advances,  that  labour  is  economically  the  only 
original  power,  and  only  original  cost,  implies  that  economy 
has  nothing  to  do  with  other  powers,  or  their  results ;  this 
rests  on  a  quite  arbitrary  and  narrow  conception  of  economic 
conduct  .  .  .  .  .  .  •  339 

Lastly,  the  limitation  of  labour  to  material  manual  labour  does 

not  need  serious  confutation  ....         340 

But  to  confute  this  first  proposition  is  not,  as  Knies  considered, 

to  refute  Rodbertus's  entire  interest  theory  .  .  340-341 

The  second  proposition,  that  the  whole  product  or  its  value, 
should  belong  to  the  labourer  who  produces  it,  is,  rightly 
understood,  quite  correct  .  .  .  •  .341 

But  as  Rodbertus  explains  it,  he  would  have  the  labourer  now 

receive  the  entire  future  value  of  the  product  .  .          342 

Illustration  of  the  steam-engine.    Supposing  that  its  value  when 

completed  is  £550  .....          342 


ANALYTICAL    TABLE   OF  CONTENTS  xli 

PAGE 

And  that  one  labourer,  working  continuously  for  five  years,  pro- 
duces the  engine ;  the  value  of  his  first  year's  wage  is  not  a 
fifth  part  of  the  value  the  engine  will  have  when  finished,  but 
a  much  less  sum — say  £100,  which,  with  interest,  will  be  the 
same  as  receiving  £120  for  his  fifth  year  .  .  343-344 

But  Rodbertus  would  have  the  value  of  the  completed  product 
spread  proportionally  over  the  five  years  of  production,  which 
would  involve  that  the  £550  was  paid  in  two  and  a  half  years  345 

Thus  giving  the  individual  labourer  a  value  in  wage  which  no 

undertaker  could  obtain  for  himself  .  .  .  346 

The  same  illustration :  assuming  the  work  divided  among 

labourers  working  successively  ....  347 

Dividing  what  they  produce  as  wage,  as  before  the  first  receives 

£100,  the  last  XI 20  ....  348-349 

Assuming  that  the  production  is  carried  on  under  an  outside 

undertaker,  the  labourers  will  receive  exactly  the  same  350-351 

The  only  undertaker  that  could  make  a  higher  wage  payment  is 

the  State  .......  351 

But  this  would  not  be  a  fulfilling,  but  a  violation  of  Rodbertus's 

own  proposition  .  .  .  .  .  .352 

The  third  proposition,  that  labour  alone  regulates  value,  .          353 

overlooks  Ricardo's  exception  of  those  goods  which  require 
time  for  their  production.  ,  But  this  exception  really  con- 
tains the  chief  feature  in  natural  interest  .  .  354-355 

To  neglect  that  is  to  assume  the  validity  of  one  fixed  law  of 

value,  by  simply  ignoring  that  there  are  others  .  .  356 

A  fourth  criticism  :  Rodbertus's  theory  of  land-rent  is  based  on 
the  statement  that  the  amount  of  rent  does  not  depend  upon 
the  amount  of  capital,  but  the  amount  of  labour  employed  ;  .  357 

which  would  involve  that  capital  bears  a  rate  of  profit  varying 

from  business  to  business  .  .  .  .  .358 

But  Rodbertus  himself  lays  down  the  law  of  the  equalisation  of 

profits  under  competition  .  .  .  .  .359 

This  equalisation  can  only  take  place  by  alteration  in  the  exchange 

value  of  products  .....  359-360 

(unless  we  suppose  it  effected  by  alteration  in  wage,  which  is 
contradictory  both  of  experience  and  Rodbertus's  own  iron 
law)  .......  361 

and  in  this  case  what  becomes  of  his  law — that  goods  exchange 

according  to  the  labour  incorporated  in  them  ?  .  .361-362 

Criticising  the  theory  as  a  whole,  even  if  it  were  granted  that  it 
explains  the  interest  on  that  capital  invested  in  wages,  it  will 


xlii  ANALYTICAL    TABLE   OF  CONTENTS 

PAGE 

be  found  incapable  of  explaining  interest  on  capital  invested 
in  materials  ;  this  is  easily  proved  where  capital  is  large  and 
workers  few,  as  in  pearl-stringing  .  .  .  363-364 

But  most  clearly  by  the  good  old  illustration  of  the  maturing 

wine         ......  364-365 

CHAPTER  III 

MARX 

His  fundamental  proposition — that  goods  exchange  solely  accord- 
ing to  the  amount  of  labour  spent  in  producing  them.  In 
exchange  use-values  are  disregarded,  and  nothing  remains  to 
account  for  the  equation  of  exchange  but  amount  of  labour  367-368 

Value  is  measured  by  "  socially  necessary  labour  time  "  .  .          369 

His  statement  of  the  problem :  Money  transformed  into  com- 
modities retransforined  into  money,  M — C — M'  .  .  370 

This  surplus  value  cannot  originate  in  the  circulation,  nor  yet 

outside  of  it  .  .  .  .  .  .  371 

But  among  the  commodities  which  the  capitalist  buys  is  one 
whose  Use  value  is  the  source  of  Exchange  value — Labour 
Power.  The  value  of  labour  power  is  regulated,  like  other 
commodities,  by  the  labour  time  necessary  for  its  reproduction  372 

The  capitalist,  buying  it  at  this  price,  is  able  to  appropriate  all 
the  value  produced  beyond  this ;  i.e.  in  every  minute  over 
the  "necessary  labour  time."  Illustration  of  the  spinner. 
All  surplus  value  then  is  unpaid  labour  .  .  373-374 

Compared  with  Rodbertus's  statement  the  most  important  point 
in  Marx's  work  is  the  attempt  to  prove  that  all  value  rests 
on  labour  ......  375 

Adam  Smith  and  Ricardo  are  generally  claimed  as  authorities 
for  this  proposition,  but  on  examination  we  shall  find  that 
they  virtually  did  no  more  than  assume  it  .  .  375-376 

Adam  Smith,  indeed,  spoke  of  the  equivalence  of  Value  and 
Trouble,  but  with  him  it  is  merely  a  general  remark,  without 
any  claim  to  scientific  exactitude  ....  377-80 

Marx's  argument  restated  :  (l)  the  common  element  in  exchange  ; 
(2)  this  element  is  not  the  use  value  ;  (3)  it  can  only  be 
labour  .......  381 

As  regards  (2),  the  use  value  is  never  disregarded  in  exchange, 

but  only  the  particular  form  the  use  assumes  .  381-382 

As  regards  (3),  is  there  no  other  possible  common  element,  such 

as  scarcity  ?......  382 


ANALYTICAL   TABLE  OF  CONTENTS  xliii 

PAGE 

And  in  goods  that  exchange  is  there  always  labour  ?  .          383 

But  apart  from  deduction,  experience  only  confirms  the  equivalence 
of  labour  and  value  in  the  case  of  one  class  of  goods,  and  that 
a  relatively  insignificant  one  .  .  .  .  '  383 

Exceptions  to  the  Labour  principle-^- 

(1)  Scarce  goods  (including  land  and  patented  goods)      .          384 

(2)  Goods  produced  by  skilled  labour    .  .  .384 

(3)  Goods  abnormally  badly  paid  .  .  .          385 

(4)  Even  where  value  and  labour  correspond,  the  labour 

value  is  only  the  gravitation  point  .  .  .          386 

(5)  Goods  that  require  greater  advances  of  "  previous " 
labour       .  .  .  .  .  .          386 

Conclusions  from  these  exceptions.  Labour  is  one  circumstance 

that  affects  value — an  intermediate  not  an  ultimate  cause  .  387 

Ricardo  knew  this,  but,  underestimating  the  exceptions,  spoke  of 
the  labour  principle  as  if  it  were  practically  universally  valid  ; 
it  was  his  followers  who  formally  gave  it  that  extension. 
The  Socialists  not  only  declare  that  this  law  is  universal,  but 
demand  the  abolition  of  interest  as  contrary  to  it  .  .  388 

Later  on  Marx  falls  into  all  Rodbertus's  mistakes,  such  as  claim- 
ing for  the  labourer  in  the  present  the  future  value  of  his 
product  .  .  .  .  .  .  .  389 

connecting  exploitation  and  surplus  value  with  wage  capital  alone, 
and  neglecting  to  show  how  labour  creates  that  value  which 
accrues  only  in  virtue  of  time  .  .  .  .390 

Causes  of  this  theory's  popularity  :  (1)  it  appeals  to  the  heart  as 

well  as  to  the  head  ;  (2)  the  weakness  of  its  critics  .  391 

BOOK  VII 

Minor  Systems 
CHAPTER  I 

THE    ECLECTICS 

Reasons  for  eclecticism  on  the  interest  problem  .  395-396 

Rossi  uses  Productivity  and  Abstinence  theory  alternately  397-399 

Molinari,  Leroy-Beaulieu,  Roscher,  Cossa  .  .  .          400 

Jevons,  finding  the  function  of  capital  in  enabling  the  labourer 
to  expend  labour  in  advance,  makes  interest  the  difference 
between  the  product  of  labour  assisted  and  that  of  labour 
unassisted  by  capital  .....  401 


xliv  ANALYTICAL    TABLE  OF  CONTENTS 

PAGE 

This  is  to  identify  surplus  in  products  with  surplus  in  value  (Pro- 
ductivity theory),  to  correct  which  lie  reckons  the  capitalist's 
abstinence  among  the  costs  of  production  (Abstinence  theory)  402-403 
His  pregnant  remarks  on  the  effect  of  time  on  the  valuation  of 
anticipated  pleasures  and  pains  only  excite  our  astonishment 
that  he  did  not  develop  them  into  a  systematic  theory  403—404 

Read   hesitates   among    Productivity,   Abstinence,   and    Labour 

theories    .......          405 

Gerstner,  Cauwes         .  .  .  .  .  .406 

Gamier,  Hoffmann     ......          407 

J.  S.  Mill  includes  profits  among  costs  of  production      .  .          408 

and  explains  it  not  only  by  the  Productivity  and  Abstinence 

theory,  but  by  the  Exploitation  theory        .  .  .  408-10 

Schaffle,  in  his  earlier  writings,  follows  Hermann's  Use  theory  ; 
in  the  Bau  und  Leben  makes  interest  a  functional  income 
(Labour  theory) ;  and  resolves  all  costs  of  production  into 
labour  (which  practically  amounts  to  an  Exploitation  theory)  411-412 

CHAPTER  II 

THE    LATER    FRUCTIFICATION    THEORY 

Henry  George's  variation  of  Turgot's  theory      .  .  .          413 

Criticising  Bastiat's  illustration,  he  indicates  that  the  cause  of 

interest  is  the  active  powers  of  nature,  .  .  .  414 

distinct  from  labour  as  being  operative  while  the  labourer  sleeps. 
That  all  forms  of  capital  produce  interest  George  explains  by 
the  equalisation  of  profits  .  .  .  .  .415 

Thus  interest  "springs  from  the  element  of  time,"  because  dur- 
ing a  year  certain  forms  of  capital  produce  fruit  .  .  416 

This  differs  from  Turgot's  theory  chiefly  in  bringing  the  source 
of  surplus  value  within  the  sphere  of  capital — finding  it,  not 
in  land,  but  in  certain  naturally  fruitful  goods  .  .  416 

Two  decisive  objections  :  (1)  it  is  quite  unscientific  to  say  that 
the  forces  of  nature  are  operative  in  one  class  of  goods  and  not 
in  another ;  (2)  he  does  not  think  it  necessary  to  show  how 
certain  naturally  fruitful  goods  produce  surplus  value  .  417 

over  the  value  of  labour  and  material  consumed  in  co-operating 

with  "  vital  powers "  .  .  .  .  .418 

His  one  attempt  at  explanation  of  surplus  value — that  time  con- 
stitutes an  independent  element  in  production — seems  to  in- 
volve that  the  vegetative  forces  of  nature  can  be  monopolised, 
this  bringing  us  back  to  Strasburger's  Productivity  theory  419-420 


ANALYTICAL    TABLE   OF  CONTENTS  xlv 

Conclusion 

PAGE 

Looking  at  all  this  tangle  of  theories,  can  we  find  the  line  of 
development  ?  Restatement  of  the  problem  as  obviously  a 
problem  of  distribution.  What  is  it  guides  a  portion  of  the 
stream  of  wealth  into  the  hands  of  the  capitalists  ?  There 
are  three  distinct  answers  .  .  .  .  .421 

(1)  That  there  are  three  sources  of  value,  Nature,  Labour, 

and  Capital,  and  that  from  each  source  flows  to  its 
owner  the  value  which  comes  from  that  source. 
This  is  the  Naive  Productivity  theory,  which  makes 
interest  a  production  problem  .  .  .  422 

(2)  That  the  stream  of  wealth  comes  from  labour  alone, 

and  is  only  diverted  at  its  mouth  by  landlords  and 
capitalists.  This  is  the  Exploitation  theory,  which 
makes  it  purely  a  distribution  problem  .  .  422 

(3)  That  thej-e  are  two  or  three  springs,  but  one  stream, 

and  under   the   influences  which  create  value   the 
stream  branches,  till  it  empties  into  three  separate 
kinds  of  income.     This  makes  it  peculiarly  a  problem 
of  value    ......          423 

As  to  (1),  there  is  no  power  in  any  factor  of  production  to  create 

value  ;  it  is  not  a  simple  problem  of  production       .  .    .      423 

As  to  (2),  it  is  not  first  in  the  final  distribution  that  a  foreign 
element  intrudes  beside  labour.     The  value  of  one  good 
diverges  from  that  of  another  according  to  the  time  required 
in  production.     The  explanation  of  surplus  value,  then,  is 
to  be  found  in  investigating  the  formation  of  value.     The 
distribution  in  which  products  that  require  time  as  well  as 
labour  possess  surplus  value,  is  not  to  be  explained  by  a 
snatch  at  the  spoil,  but  by  previous  formations  of  value          424—425 
In  order  of  merit,  then,  the  Naive  Productivity  and  the  Ex- 
ploitation theories  stand  lowest       .  .  .  .          425 

They  do  not   even  see  the  problem,  and  they  both  assume  a 

theory  of  value  which  bases  it  on  production  .  .          426 

Next  come  those  theories  which  use  the  external  machinery  of  a 
theory  of  costs  ;    this   has  the   disadvantage  of   explaining 
surplus  value  without  direct  reference   to   the  wants  and 
satisfactions  in  which  value  arises  .  .  .  .427 

Highest  stand  those  which  recognise  that  interest  is  a  problem 
of  value,  as  in  the  higher  forms  of  the  Abstinence  and  Use 
theories,  and  particularly  in  Menger's  statement  .  427-428 

The  future  work  of  interest  theorists    .  .  .  428 


INTEODUCTION 

THE   PROBLEM    OF   INTEREST 

IT  is  generally  possible  for  any  one  who  owns  capital  to  obtain 
from  it  a  permanent  net  income,  called  Interest.1 

This  income  is  distinguished  by  certain  notable  character- 
istics. It  owes  its  existence  to  no  personal  activity  of  the 
capitalist,  and  flows  in  to  him  even  where  he  has  not  moved  a 
finger  in  its  making.  Consequently  it  seems  in  a  peculiar 
sense  to  spring  from  capital,  or,  to  use  a  very  old  metaphor, 
to  be  begotten  of  it.  It  may  be  obtained  from  any  capital,  no 
matter  what  be  the  kind  of  goods  of  which  the  capital  con- 
sists :  from  goods  that  are  barren  as  well  as  from  those  that 
are  naturally  fruitful ;  from  perishable  as  well  as  from  durable 
goods ;  from  goods  that  can  be  replaced  and  from  goods  that 
cannot  be  replaced ;  from  money  as  well  as  from  commodities. 
And,  finally,  it  flows  in  to  the  capitalist  without  ever  exhausting 
the  capital  from  which  it  comes,  and-  therefore  without  any 
necessary  limit  to  its  continuance.  It  is,  if  one  may  use  such 
an  expression  about  mundane  things,  capable  of  an  everlasting 
life. 

Thus  it  is  that  the  phenomenon  of  interest,  as  a  whole, 
presents  the  remarkable  picture  of  a  lifeless  thing  producing 
an  everlasting  and  inexhaustible  supply  of  goods.  And  this 

1  Many  German  economists  use  the  word  Kapitalrente  as  well  as  Kapitalzins. 
Sanders  defines  Rente  as  ' '  Einkiinfte  die  man  als  Nutzung  von  Grundstucken, 
Kapitalien,  und  Rechten  bezieht."  So  Littre  gives  Rente  as  "Revenu  annuel." 
The  word  occurs  in  Chaucer  as  equivalent  of  income  : — 

"For  catel  (chattels)  hadden  they  ynough  and  rent."  —  Canterbury  Tales, 
Prologue,  1.  375.  In  English  we  still  retain  the  word  Rent  instead  of  interest  in 
a  few  cases  outside  of  its  special  application  to  land. — "W.  S. 

B 


2  THE  PROBLEM  OF  INTEREST  INTROD. 

remarkable  phenomenon  appears  in  economic  life  with'  such 
perfect  regularity  that  the  very  conception  of  capital  has  not 
infrequently  been  based  on  it.1 

Whence  and  why  does  the  capitalist,  without  personally 
exerting  himself,  obtain  this  endless  flow  of  wealth  ? 

These  words  contain  the  theoretical  problem  of  interest. 
When  the  actual  facts  of  the  relation  between  interest  and 
capital,  with  all  its  essential  characteristics,  are  described  and 
fully  explained,  that  problem  will  be  solved.  But  the  explana- 
tion must  be  complete  both  in  compass  and  in  depth.  In 
compass,  inasmuch  as  all  forms  and  varieties  of  interest  must 
be  explained.  In  depth,  inasmuch  as  the  explanation  must 
be  carried  without  a  break  to  the  very  limits  of  economical 
research :  in  other  words,  to  those  final,  simple,  and  acknow- 
ledged facts  with  which  economical  explanation  ends  ;  those 
facts  which  economics  rests  on,  but  does  not  profess  to  prove ; 
facts  the  explanation  of  which  falls  to  the  related  sciences, 
particularly  to  psychology  and  natural  science. 

From  the  theoretical  problem  of  interest  must  be  carefully 
distinguished  the  social  and  political  problem.  The  theoretical 
problem  asks  why  there  is  interest  on  capital.  The  social  and 
political  problem  asks  whether  there  should  be  interest  on 
capital — whether  it  is  just,  fair,  useful,  good, — and  whether  it 
should  be  retained,  modified,  or  abolished.  While  the  theo- 
retical problem  deals  exclusively  with  the  causes  of  interest, 
the  social  and  political  problem  deals  principally  with  its  effects. 
And  while  the  theoretical  problem  is  only  concerned  about  the 
true,  the  social  and  political  problem  devotes  its  attention  first 
and  foremost  to  the  practical  and  the  expedient. 

As  distinct  as  the  nature  of  the  two  problems  is  the 
character  of  the  arguments  that  are  used  by  each  of  them,  and 
the  strictness  with  which  the  arguments  are  used.  In  the 
one  case  the  argument  is  concerned  with'  truth  or  falsehood, 
while  in  the  other  it  is  concerned  for  'the  most  part  with  ex- 
pediency. To  the  question  as  to  the  'causes  of  interest  there 
can  be  only  one  answer,  and  its  truth  every  one  must  recognise 
if  the  laws  of  thought  are  correctly  applied.  But  whether 

1  Thus  Hermann  in  his  Staatswirthschaftliche  Untersuckungen,  p.  211,  defines 
capital  as  "Vermbgen,  das  seine  Nutzung,  wie  ein  immer  neues  Gut,  fort- 
dauernd  dem  Bediirfniss  darbietet,  ohne  an  seinem  Tauschwerth  abzunehmen. " 


INTROD.  ITS  TWO  BRANCHES 

interest  is  just,  fair,  and  useful  or  not,  necessarily  remains  to 
a  great  extent  a  matter  of  opinion.  The  most  cogent  argu- 
mentation on  this  point,  though  it  may  convince  many  who 
thought  otherwise,  will  never  convert  all.  Suppose,  for  instance, 
that  by  the  soundest  of  reasoning  it  was  shown  to  be  prob- 
able that  the  abolition  of  interest  would  be  immediately  followed 
by  a  decline  in  the  material  welfare  of  the  race,  that  argument 
will  have  no  weight  with  the  man  who  measures  by  a  standard 
of  his  own,  and  counts  material  welfare  a  thing  of  no  great 
importance — perhaps  for  the  reason  that  earthly  life  is  but  a 
short  moment  in  comparison  with  eternity,  and  because  the 
material  wealth  that  interest  ministers  to  will  rather  hinder 
than  help  man  in  attaining  his  eternal  destiny. 

Prudence  urgently  demands  that  the  two  problems  which 
are  so  fundamentally  distinct  should  be  kept  sharply  apart  in 
scientific  investigation.  It  cannot  be  denied  that  they  stand 
in  close  relation  with  each  other.  Indeed  it  appears  to  me 
that  there  is  no  better  way  of  coming  to  a  correct  decision  on 
the  question  whether  interest  be  a  good  thing,  than  by  getting 
a  proper  knowledge  of  the  causes  which  give  rise  to  it.  But 
we  must  remember  that  this  connection  only  entitles  us  to 
bring  together  the  results ;  it  does  not  justify  us  in  confusing 
the  investigations. 

Confusing  these  investigations  will,  in  fact,  endanger  the 
correct  solution  of  either  problem,  and  that  on  several  grounds. 
In  the  social  and  political  question  there  naturally  come  into 
play  all  sorts  of  wishes,  inclinations,  and  passions.  If  both 
problems  are  attempted  at  the  same  time,  these  will  find 
entrance  only  too  easily  into  the  theoretical  part  of  the  inquiry, 
and  there,  in  virtue  of  the  real  importance  they  have  in  their 
proper  place,  weigh,  down  one  of  the  sccdes — perhaps  that  very 
one  which  would  have  remained  the  lighter  if  nothing  but 
grounds  of  reason  had  been  put  in  the  balance.  What  one 
wishes  to  believe,  says  an  old  and  true  proverb,  that  one  easily 
believes.  And  if  our  judgment  on  the  theoretical  interest 
problem  is  perverted,  it  will  naturally  react  and  prejudice  our 
judgment  on  the  practical  and  political  question. 

Considerations  like  these  show  that  there  is  constant 
danger  that  an  unjustifiable  use  may  be  made  of  arguments 
in  themselves  justifiable.  The  man  who  confuses  the  two  prob- 


4  THE  PROBLEM  OF  INTEREST  INTROD. 

lems,  or  perhaps  mistakes  the  one  for  the  other,  and,  looking 
at  the  matter  in  this  way,  forms  one  opinion  upon  both,  will 
be  apt  to  confuse  the  two  groups  of  arguments  also,  and  allow 
each  of  them  an  influence  on  his  total  judgment.  He  will 
let  his  judgment  as  to  the  causes  of  the  phenomenon  of  interest 
be  guided,  to  some  extent,  by  principles  of  expediency' — which 
is  wholly  and  entirely  bad ;  and  he  will  let  his  judgment  as 
to  the  advantages  of  interest  as  an  institution  be,  to  some 
extent,  directly  guided  by  purely  theoretical  considerations — 
which,  at  least,  may  be  bad.  In  the  case,  e.g.  where  the  two 
problems  are  mixed  up,  it  might  easily  happen  that  one  who 
sees  that  the  existence  of  interest  is  attended  by  an  increased 
return  in  the  national  production,  will  be  disposed  to  agree 
with  a  theory  which  finds  the  cause  of  interest  in  a  productive 
power  of  capital.  Or  it  may  happen  that  one  comes  to  the 
theoretical  conclusion  that  interest  has  its  origin  in  the  exploit- 
ation of  the  labourer,  made  possible  by  the  relations  of  com- 
petition between  labour  and  capital ;  and  on  that  account  he 
may,  without  more  ado,  condemn  the  institution  of  interest, 
and  advocate  its  abolition.  The  one  is  as  illogical  as  the 
other.  Whether  the  existence  of  interest  be  attended  by 
results  that  are  useful  or  harmful  to  the  economical  pro- 
duction of  a  people,  has  absolutely  nothing  to  do  with  the 
question  why  interest  exists ;  and  our  knowledge  of  ttie  source 
from  which  interest  springs,  in  itself  gives  us  no  ground  what- 
ever for  deciding  whether  interest  should  be  retained  or  abolished. 
Whatever  be  the  source  from  which  interest  comes — even  if 
that  source  be  a  trifle  muddy — we  have  no  right  to  decide  for 
its  abolition  unless  on  the  ground  that  the  real  interests  of 
the  people  would  be  advanced  thereby. 

In  economical  treatment  this  separation  of  the  two  distinct 
problems,  which  prudence  suggests,  has  been  neglected  by  many 
writers.  But  although  this  neglect  has  been  the  source  of 
many  error-,  misunderstandings,  and  prejudices,  we  can  scarcely 
complain  of  it,  since  it  is  the  practical  problem  of  interest 
that  has  jrought  the  theoretical  problem  and  its  scientific 
treatment  to  the  front.  Through  the  merging  of  the  two 
problems  into  one,  it  is  true,  the  theoretical  problem  has  of 
necessity  been  worked  at  under  circumstances  which  were  not 
favourable  for  the  discovery  of  truth.  But  without  this  merging 


INTROD.  THE  THEORETICAL  PROBLEM  5 

very  many  able  writers  would  not  have  worked  at  it  at  all. 
It  is  all  the  more  important  that  we  profit  in  the  future  by 
such  experiences  of  the  past. 

The  intentionally  limited  task  to  which  I  intend  to  devote 
myself  in  the  following  pages  is  that  of  writing  a  critical 
history  of  the  theoretical  problem  of  interest.  I  shall  endeavour 
to  set  down  in  their  historical  development  the  scientific  efforts 
made  to  discover  the  nature  and  origin  of  interest,  and  to 
submit  to  critical  examination  the  various  views  which  have 
been  taken  of  it.  As  to  opinions  whether  interest  is  just, 
useful,  and  commendable,  I  shall  only  include  them  in  my 
statement  so  far  as  that  is  indispensable  for  getting  at  the 
theoretical  substance  that  they  contain. 

Notwithstanding  this  limitation  of  subject,  there  will  be 
no  lack  of  material  for  a  critical  history,  either  as  regards  the 
historical  or  as  regards  the  critical  part.  A  whole  literature 
has  been  written  on  the  subject  of  interest,  and  a  literature 
which,  in  mere  amount,  is  equalled  by  few  of  the  departments 
of  political  economy,  and  by  none  in  the  variety  of  opinion 
it  presents.  Not  one,  nor  two,  nor  three,  but  a  round  dozen 
of  interest  theories  testify  to  the  zeal  with  which  economists 
have  devoted  themselves  to  the  investigation  of  this  remarkable 
problem. 

"Whether  these  exertions  were  quite  as  successful  as  they 
were  zealous  may  with  some  reason  be  doubted.  The  fact  is 
that,  of  the  numerous  views  advanced  as  to  the  nature  and 
origin  of  interest,  no  single  one  was  able  to  obtain  undivided 
assent.  Each  of  them,  as  might  be  expected,  had  its  circle  of 
adherents,  larger  or  smaller,  who  gave  it  the  faith  of  full  con- 
viction. But  each  of  them  omitted  considerations  enough  to 
prevent  its  being  accepted  as  a  completely  satisfactory  theory. 
Still  even  those  theories  which  could  only  unite  weak  minorities 
on  their  side  showed  themselves  tenacious  enough  to  resist 
extinction.  And  thus  the  present  position  of  the  theory  ex- 
hibits a  motley  collection  of  the  most  conflicting  opinions, 
no  one  of  them  strong  enough  to  conquer,  and  no  one  of 
them  willing  to  admit  defeat ;  the  very  number  of  them  in- 
dicating to  the  impartial  mind  what  a  mass  of  error  they 
must  contain. 


6  THE  PROBLEM  OF  INTEREST  INTROD. 

I  venture  to  hope  that  the  following  pages  may  bring  these 
scattered  theories  a  little  nearer  to  a  point. 

Before  I  can  apply  myself  to  my  proper  task  I  must  come 
to  an  understanding  with  my  readers  as  to  some  conceptions 
and  distinctions  which  we  shall  have  to  make  frequent  use  of 
in  the  sequel. 

Of  the  many  meanings  which,  in  the  unfortunate  and  in- 
congruous terminology  of  our  science,  have  been  given  to  the 
word  Capital,  I  shall  confine  myself,  in  the  course  of  this 
critical  inquiry,  to  that  in  which  capital  signifies  a  complex 
of  produced  means  of  acquisition — that  is,  a  complex  of  goods 
that  originate  in  a  previous  process  of  production,  and  are  des- 
tined, not  for  immediate  consumption,  but  to  serve  as  means 
of  acquiring  further  goods.  Objects  of  immediate  consumption, 
then,  and  land  (as  not  produced)  stand  outside  our  conception 
of  capital. 

I  shall  only  justify  my  preference  for  this  definition  mean- 
time on  two  grounds  of  expediency.  Firstly,  by  adopting  it  a 
certain  harmony  will  be  maintained,  so  far,  at  least,  as  termin- 
ology is  concerned,  with  the  majority  of  those  writers  whose 
views  we  shall  have  to  state ;  and  secondly,  this  limitation  of 
the  conception  of  capital  defines  also  most  correctly  the  limits 
of  the  problem  with  which  we  mean  to  deal.  'It  does  not  fall 
within  our  province  to  go  into  the  theory  of  land  rent.  We 
have  only  to  give  the  theoretical  explanation  of  that  acquisition 
of  wealth  which  is  derived  from  different  complexes  of  goods, 
exclusive  of  land.  The  more  complete  development  of  the 
conception  of  capital  I  reserve  for  a  future  occasion.1 

Within  this  general  conception  of  capital,  further,  there  are 
two  well-known  shades  of  difference  that  require  to  be  noted. 
There  is  the  National  conception  of  capital,  which  embraces 
the  national  means  of  economic  acquisition,  and  only  these ; 
and  there  is  the  Individual  conception  of  capital,  which  includes 
everything  that  is  a  means  to  economic. acquisition  in  the  hands 
of  an  individual — that  is  to  say.  those  goods  by  means  of  which 
an  individual  obtains  wealth  for  himself,  no  matter  whether 
the  goods  are,  from  the  point  of  view  of  the  national  economy, 

1  A  promise  now   fulfilled  by  the  publication  of  the   Positive    Theorie  des 
Kapitalcs,  Innsbruck,  13S9. — W.  S. 


INTROD.  DEFINITIONS  7 

means  of  acquisition  or  means  of  enjoyment,  goods  for  pro- 
duction or  goods  for  consumption.  Thus,  e.g.  the  books  of  a 
circulating  library  will  fall  under  the  individual  conception  of 
capital,  but  not  under  the  national  conception.  The  national 
conception,  if  we  except  those  few  objects  of  immediate  con- 
sumption lent  at  interest  to  other  countries,  includes  merely 
the  produced  means  of  production  belonging  to  a  country.  In 
what  follows  we  shall  chiefly  be  concerned  with  the  national 
conception  of  capital,  and  shall,  as  a  rule,  keep  this  before  us 
when  the  word  capital  by  itself  is  used. 

The  income  that  flows  from  capital,  sometimes  called  in 
German  Rent  of  Capital,  we  shall  simply  call  Interest.1 

Interest  makes  its  appearance  in  many  different  forms. 

First  of  all,  we  must  distinguish  between  Gross  interest 
and  Net  interest.  The  expression  gross  interest  covers  a  great 
many  heterogeneous  kinds  of  revenue,  which  only  outwardly 
form  a  whole.  It  is  the  same  thing  as  the  gross  return  to  the 
employment  of  capital ;  and  this  gross  return  usually  includes, 
besides  the  true  interest,  such  things  as  part  replacement  of 
the  substance  of  capital  expended,  compensation  for  all  sorts 
of  current  costs,  outlay  on  repairs,  premiums  for  risk,  and  so 
on.  Thus  the  Hire  or  Rent  which  an  owner  receives  for  the 
letting  of  a  house  is  a  Gross  interest ;  and  if  we  wish  to  ascer- 
tain what  we  may  call  the  true  income  of  capital  contained 
in  it,  we  must  deduct  a  certain  proportion  for  the  running 
costs  of  upkeep,  and  for  the  rebuilding  of  the  house  at  such 
time  as  it  falls  into  decay.  Net  interest,  on  the  other  hand, 
is  just  this  true  income  of  capital  which  appears  after  these 
heterogeneous  elements  are  deducted  from  gross  interest  It 
is  the  explanation  of  Net  interest  with  which  the  theory  of 
interest  naturally  has  to  do. 

Next,  a  distinction  must  be  drawn  between  Natural  interest 
and  Contract  or  Loan  interest.  In  the  hands  of  one  who 
employs  capital  in  production,  the  utility  of  his  capital  appears 
in  the  fact  that  the  total  product  obtained  by  the  assistance 
of  the  capital  possesses,  as  a  rule,  a  higher  value  than  the 
total  cost  of  the  goods  expended  in  the  course  of  produc- 


1  Kapitdlzins.      The  word    ' '  Interest "   in   English   does    not  require   any 
addition.— W.  S. 


8  THE  PROBLEM  OF  INTEREST  INTROD. 

tion.     The  excess  of  value  constitutes  the  Profit  of  capital,  or, 
as  we  shall  call  it,  Natural  interest. 

The  owner  of  capital,  however,  frequently  prefers  to  give 
up  the  chance  of  obtaining  this  natural  interest,  and  to  hand 
over  the  temporary  use  of  the  capital  to  another  man  against 
a  fixed  compensation.  This  compensation  bears  different  names 
in  common  speech.  It  is  called  Hire,  and  sometimes  Rent  (in 
German  Miethzins  and  Pachtzins)  when  the  capital  handed  over 
consists  of  durable  or  lasting  goods.  It  is  generally  called 
Interest  when  the  capital  consists  of  perishable  or  fungible 
goods.1  All  these  kinds  of  compensation,  however,  may  be 
appropriately  grouped  under  the  name  of  Contract  interest  or 
Loan  interest. 

While,  however,  the  conception  of  Loan  interest  is  ex- 
ceedingly simple,  that  of  Natural  interest  requires  more  close 
definition. 

It  may  with  reason  appear  questionable  if  the  entire 
profit  realised  by  an  undertaker  from  a  process  of  pro- 
duction should  be  put  to  the  account  of  his  capital.2  Un- 
doubtedly it  should  not  be  so  where  the  undertaker  has  at 
the  same  time  occupied  the  position  of  a  worker  in  his  own 
undertaking.  Here  there  is  no  doubt  that  one  part  of  the 
"  profit "  is  simply  the  undertaker's  wage  for  the  work  he  has 
done.  But  even  where  he  does  not  personally  take  part  in 
the  carrying  out  of  the  production,  he  yet  contributes  a  certain 
amount  of  personal  trouble  in  the  shape  of  intellectual  super- 
intendence— say,  in  planning  the  business,  or,  at  the  least, 
in  the  act  of  will  by  which  he  devotes  his  means  of  pro- 
duction to  a  definite  undertaking.  The  question  now  is  whether, 

1  "Es  heisst  Mieth-oder  Pachtzins,  wenn  das  liberlassene  Kapital  aus 
dauerbaren  Giitern  bestand.  Es  heisst  Zinsen  oder  Interessen,  wenn  das  Kapital 
aus  verbrauchlichen  oder  vertretbaren  Giitern  bestand."  I  have  translated  the 
passage  to  suit  our  English  usage  of  the  words.  The  adjective  "  vertretbar  "  (for 
which  the  legal  "fungible"  is  the  only  equivalent)  indicates  that  the  thing  lent 
is  not  itself  given  back,  but  another  of  the  same  kind.  Grain  and  money  are  the 
typical  fungibles. — W.  S. 

8  I  think  it  advisable  to  translate  Untcrnehmer  and  Uitiernelimung  throughout 
by  Undertaker  and  Undertaking.  Rowland  Hill,  when  he  adapted  Greensleaves 
to  a  psalm,  said  he  did  not  see  why  the  devil  should  have  all  the  good  tunes. 
Neither,  in  my  opinion,  should  our  science  any  longer  deny  itself  these  useful 
words,  introduced  by  Adam  Smith  himself,  simply  because  they  are  usually  con- 
fined with  us  to  one  special  branch  of  industry. — W.  S. 


INTROD.  DEFINITIONS  9 

in  view  of  this,  we  should  not  distinguish  two  quotas  in  the 
total  sum  of  profit  realised  *by  the  undertaking ;  one  quota 
to  be  considered  as  result  of  the  capital  contributed,  a  second 
quota  to  be  considered  as  result  of  the  undertaker's  exertion. 

On  this  point  opinions  are  divided.  Most  economists 
draw  some  such  distinction.  From  the  total  profit  obtained 
by  the  productive  undertaking  they  regard  one  part  as  profit 
of  capital,  another  as  undertaker's  profit.  Of  course  it  cannot 
be  determined  with  mathematical  exactitude,  in  each  individual 
case,  how  much  has  been  contributed  to  the  making  of  the  total 
profit  by  the  objective  factor,  the  capital,  and  how  much  by  the 
personal  factor,  the  undertaker's  activity.  Nevertheless  we 
borrow  a  scale  from  outside,  and  divide  off  the  two  shares 
arithmetically.  We  find  what  in  other  circumstances  a  capital 
of  definite  amount  generally  yields.  That  is  shown  most 
simply  by  the  usual  rate  of  interest  obtainable  for  a  perfectly 
safe  loan  of  capital.  Then,  of  the  total  profit  from  the  under- 
taking, that  amount  which  would  be  enough  to  pay  the 
usual  rate  of  interest  on  the  capital  invested  in  it,  is  put 
down  to  capital,  while  the  remainder  is  put  to  the  account 
of  the  undertaker's  activity  as  the  profit  of  undertaking. 
For  instance,  if  an  undertaking  in  which  a  capital  of  £100, 000 
is  invested  yields  an  annual  profit  of  £9000,  and  if  the  cus- 
tomary rate  of  interest  is  5  per  cent,  then  £5000  will  be 
considered  as  profit  on  capital,  and  the  remaining  £4000  as 
undertaker's  profit. 

On  the  other  hand,  there  are  many,  especially  among  the 
younger  economists,  who  hold  that  such  a  division  is  inadmis- 
sible, and  that  the  so-called  undertaker's  profit  is  homogeneous 
with  the  profit  on  capital.1 

This  discussion  forms  the  subject  of  an  independent 
problem  of  no  little  difficulty — the  problem  of  Undertaker's 
Profit.  The  difficulties,  however,  which  surround  our  special 
subject,  the  problem  of  interest,  are  so  considerable  that 
I  do  not  feel  it  my  duty  to  add  to  them  by  taking  up 
another.  I  purposely  refrain  then  from  entering  on  any 
investigation,  or  giving  any  decision  as  to  the  problem  of 
undertaker's  profit.  I  shall  only  treat  that  as  interest  which 

1  On  the  whole  question  see  Pierstorff,  Die  Lchrc  vom  Untcrnchmergeunnn 
Berlin,  1875. 


10  THE  PROBLEM  OF  INTEREST  INTROD. 

everybody  recognises  to  be  interest — that  is  to  say,  the  whole 
of  contract  interest,1  and,  of  the  "  natural "  profit  of  under- 
taking only  so  much  as  represents  the  rate  of  interest  usually 
obtainable  for  capital  employed  in  undertaking.  The  question 
whether  the  so-called  undertaker's  profit  is  a  profit  on  capital 
or  not  I  purposely  leave  open.  Happily  the  circumstances 
are  such  that  I  can  do  so  without  prejudice  to  our  investiga- 
tion ;  for  at  the  worst  it  is  just  those  phenomena  which  we 
all  recognise  as  interest  that  constitute  the  great  majority, 
and  contain  the  characteristic  substance  of  the  general  interest 
problem.  Thus  we  can  investigate  with  certainty  into  the 
nature  and  origin  of  the  phenomenon  of  interest  without  requir- 
ing to  decide  beforehand  on  the  exact  boundary-line  between 
the  two  profits. 

I  need  scarcely  say  that,  in  these  scanty  remarks,  I  do  not 
suppose  myself  to  have  given  an  exhaustive,  or  even  a  perfectly 
correct  statement  of  the  principles  of  the  theory  of  capital. 
All  that  I  have  attempted  to  do  is  to  lay  down  as  briefly 
as  possible  a  useful  and  certain  terminology,  on  the  basis  of 
which  we  may  have  a  common  understanding  in  the  critical 
and  historical  part  of  this  work. 

1  Of  course  only  so  far  as  it  is  net  interest. 


BOOK  I 

THE  DEVELOPMENT  OF  THE  PKOBLEM 


CHAPTER    I 

THE    OPPOSITION    TO    INTEREST    IN    CLASSICAL    AND 
MEDLEVAL    TIMES 

IT  has  often  been  remarked  that  not  only  does  our  knowledge 
of  interesting  subjects  gradually  develop,  but  also  our  curiosity 
regarding  these  subjects.  It  is  very  rarely  indeed  that,  when 
a  phenomenon  first  attracts  attention,  it  is  seen  in  its  full  ex- 
tent, with  all  its  constituent  and  peculiar  details,  and  is  then 
made  the  subject  of  one  comprehensive  inquiry.  Much  more 
frequently  is  it  the  case  that  attention  is  first  attracted  by 
some  particularly  striking  instance,  and  it  is  only  gradually 
that  the  less  striking  phenomena  come  to  be  recognised  as 
belonging  to  the  same  group,  and  are  included  in  the  compass 
of  the  growing  problem. 

This  has  been  the  case  with  the  phenomenon  of  interest,  i 
It  first  became  the  object  of  question  only  in  the  form  of  I 
Loan  interest,  and  for  full  two  thousand  years  the  nature  of  I 
loan  interest  had  been  discussed  and  theorised  on,  before 
any  one  thought  it  necessary  to  put  the  other  question  which 
first  gave  the  problem  of  interest  its  complete  and  proper 
range — the  question  of  the  why  and  whence  of  Natural 
interest. 

It  is  quite  intelligible  why  this  should  be  so.  What 
specially  challenges  attention  about  interest  is  that  it  has  its 
source  and  spring,  not  in  labour,  but,  as  it  were,  in  some 
bounteous  mother-wealth.  In  loan  interest,  and  specially  in 
loan  interest  derived  from  sums  of  money  that  are  by  nature 
barren,  this  characteristic  is  so  peculiarly  noticeable  that  it 
must  excite  question  even  where  no  close  attention  has  been 
given  it.  Natural  interest,  on  the  other  hand,  if  not  obtained 


14  THE  OPPOSITION  TO  INTEREST  BOOK  i 

through  the  labour,  is  certainly  obtained  under  co-operation  with 
the  labour  of  the  capitalist-undertaker ;  and  to  superficial  con- 
sideration labour  and  co-operation  with  labour  are  too  easily 
confounded,  or,  at  any  rate,  not  kept  sufficiently  distinct.  Thus 
we  fail  to  recognise  that  there  is  in  natural  interest,  as  well  as 
in  loan  interest,  the  strange  element  of  acquisition  of  wealth 
without  labour.  Before  this  could  be  recognised,  and  thus 
before  the  interest  problem  could  attain  its  proper  compass,  it 
was  necessary  that  capital  itself,  and  its  employment  in  economic 
life,  should  take  a  much  wider  development,  and  that  there 
should  be  some  beginning  of  systematic  investigation  into  the 
sources  of  this  income.  And  this  investigation  could  not  be 
one  that  was  content  to  point  out  the  obvious  and  striking 
forms  of  the  phenomenon,  but  one  that  would  cast  light  on  its 
more  homely  forms.  But  these  conditions  were  only  fulfilled 
some  thousands  of  years  after  men  had  first  expressed  their 
wonder  at  loan  interest  "  born  of  barren  money." 

The  history  of  the  interest  problem,  therefore,  begins  with 
a  very  long  period  in  which  loan  interest,  or  usury,  alone  is  the 
subject  of  investigation.  This  period  begins  deep  in  ancient 
times,  and  reaches  down  to  the  eighteenth  century  of  our  era. 
It  is  occupied  with  the  contention  of  two  opposing  doctrines : 
the  elder  of  the  two  is  hostile  to  interest;  the  later  defends 
it.  The  course  of  the  quarrel  belongs  to  the  history  of  civil- 
isation ;  it  is  deeply  interesting  in  itself,  and  has  besides  had 
an  influence  of  the  deepest  importance. on  the  practical  develop- 
ment of  economic  and  legal  life,  of  which  we  may  see  many 
traces  even  in  our  own  day.  But  as  regards  the  development 
of  the  theoretical  interest  problem,  the  whole  period,  notwith- 
standing ij:s  length,  and  notwithstanding  the  great  number  of 
writers  who  flourished  during  it,  is  rather  barren.  Men  were 
fighting,  as  we  shall  see,  not  for  the  centre  of  the  problem,  but 
for  an  outpost  of  it  which,  from  a  theoretical  standpoint,  was  of 
comparatively  subordinate  importance.  Theory  was  too  much 
the  bond  servant  of  practice.  People  were  concerned  less  to 
investigate  the  nature  of  loan  interest  for  its  own  sake  than 
to  find  in  theory  something  that  would  help  them  to  an  opinion 
on  the  good  or  evil  of  interest,  and  would  give  that  opinion  a 
firm  root  in  religious,  moral,  or  economical  grounds.  Since, 
moreover,  the  most  active  time  of  the  controversy  coincided 


CHAP,  i  DISLIKE  OF  LOAN  INTEREST  15 

with  the  active  time  of  scholasticism,  it  may  be  guessed  that 
the  knowledge  of  the  nature  of  the  subject  by  no  means  ran 
parallel  with  the  number  of  the  arguments  and  counter-argu- 
ments that  were  urged. 

I  shall  therefore  not  waste  many  words  in  describing  these 
earliest  phases  in  the  development  of  our  problem,  and  this 
all  the  more  readily  that  there  are  already  several  treatises,  and 
some  of  them  excellent  ones,  relating  to  that  period.  In  them 
the  reader  will  find  much  more  detail  than  need  be  introduced 
for  our  purpose,  or  would  even  be  appropriate  here.1  We 
begin,  then,  with  some  account  of  the  hostility  to  loan 
interest. 

Eoscher  has  well  remarked  that  on  the  lower  stages  of 
economical  development  there  regularly  appears  a  lively  dis- 
like to  the  taking  of  interest.  Credit  has  still  little  place  in 
production.  Almost  all  loans  are  loans  for  consumption,  and 
are,  as  a  rule,  loans  to  people  in  distress.  The  creditor  is 
usually  rich,  the  debtor  poor ;  and  the  former  appears  in  the 
hateful  light  of  a  man  who  squeezes  something  from  the  little 
of  the  poor,  in  the  shape  of  interest,  to  add  it  to  his  own 
superfluous  wealth.  It  is  not  to  be  wondered  at,  then,  that 
both  the  ancient  world  and  the  Christian  Middle  Ages  were 
exceedingly  unfavourable  to  usury ;  for  the  ancient  world,  in 
spite  of  some  few  economical  flights,  had  never  developed  very 
much  of  a  credit  system,  and  the  Middle  Ages,  after  the  decay 
of  the  Eoman  culture,  found  themselves,  in  industry  as  in  so 

1  From  the  abundant  literature  that  treats  of  interest  and  usury  in  ancient 
times,  may  be  specially  mentioned  the  following  : — 

Bbhmer,  Jus  Ecclesiasticum  Protestantium,  Halle,  1736,  vol.  v.  tit.  19. 

Rizy,  Ueber  Zinstaxen  und  Wuchergesetze,  Vienna,  1859. 

"Wiskemann,  Darstcllung  der  in  Deutschland  zur  Zcit  der  Reformation  herr- 
schenden  national -okonomischcn  Ansichten  (Prize  Essays  of  the  Fiirstliche 
Jablonowski'sche  Gesellschaft,  vol.  x.  Leipzig,  1861). 

Laspeyres,  Geschichte  der  volkioirthschaftlichen  Ansichten  der  Niederldnder 
(vol.  xi.  of  same  Prize  Essays,  Leipzig,  1863). 

Neumann,  Geschichte  des  Wvdiers  in  Dewtschland,  Halle,  1865. 

Funk,  Zins  und  Wucher,  Tubingen,  1868. 

Knies,  Der  Kredit,  part  i.,  Berlin,  1876,  p.  328,  etc. 

Above  all,  the  works  of  Endemann  on  the  canon  doctrine  of  economics,  Die 
national -okonomischen  Grunds'dtze  der  kanonistischen  Lchre,  Jena,  1863,  and  his 
Stvdien  in  der  romanisch- kanonistischen  Wirthschafts-und  Rechtslehre,  vol.  i. 
Berlin,  1874 ;  voL  ii.  1883. 


16  THE  OPPOSITION  TO  INTEREST  BOOK  i 

many  other  things,  thrown  back  to  the  circumstances  of  primi- 
tive times. 

In  both  periods  this  dislike  has  left  documentary  record. 

The  hostile  expressions  of  the  ancient  world  are  not  few 
in  number,  but  they  are  of  trifling  importance  as  regards 
development  of  theory.  They  consist  partly  of  a  number  of 
legislative  acts  forbidding  the  taking  of  interest, — some  of  them 
reaching  back  to  a  very  early  date,1 — partly  of  more  or  less 
incidental  utterances  of  philosophic  or  philosophising  writers. 

The  legal  prohibitions  of  interest  may,  of  course,  be  taken 
as  evidence  of  a  strong  and  widespread  conviction  of  the  evils 
connected  with  its  practice.  But  it  can  scarcely  be  said  that 
they  were  founded  on  any  distinct  theory  ;  at  any  rate  no  such 
theory  has  been  handed  down  to  us.  The  philosophic  writers, 
again — like  Plato,  Aristotle,  the  two  Catos,  Cicero,  Seneca, 
Plautus,  and  others— usually  touch  on  the  subject  too  cursorily 
to  give  any  foundation  in  theory  for  their  unfavourable  judgment. 
Moreover,  the  context  often  makes  it  doubtful  whether  they 
object  to  interest  as  such,  or  only  to  an  excess  of  it ;  and,  in 
the  former  case,  whether  their  objection  is  on  the  ground  of  a 
peculiar  blot  inherent  in  interest  itself,  or  only  because  it 
usually  favours  the  riches  they  despise.2 

1  E.g.  the  prohibition  of  interest  by  the  Mosaic  Code,  which,  however,  only 
forbade  lending  at  interest  between  Jews,  not  lending  by  Jews  to  strangers, 
Exodus  xxii.  25  ;  Leviticus  xxv.  35-37  ;  Deuteronomy  xxiii.   19,  20.     In  Rome, 
after  the  Twelve   Tables  had  permitted  an  Unciarum  Foenus,  the  taking  of 
interest  between  Roman  citizens  was  entirely  forbidden  by  the  Lex  Genucia, 
B.C.  322.     Later,  by  the  Lex  Sempronia  and  the  Lex  Gabinia,  the  prohibition 
was  extended  to  Socii  and  to  those  doing  business  with  provincials.     See  also 
Knies,  Der  Kredit,  part  i.  p.  328,  etc.,  and  the  writers  quoted  there. 

2  I  may  append  some  of  the  passages  oftenest  referred  to.     Plato  in  the  Laws, 
p.  742,  says :    "  No  one  shall  deposit  money  with  another  whom  he  does  not 
trust  as  a  friend,  nor  shall  he  lend  money  upon  interest."     Aristotle,  Nicho- 
machean  Ethics,  iv.  §  1 :  "  Such  are  all  they  who  ply  illiberal  trades  ;  as  those,  for 
instance,  who  keep  houses  of  ill-fame,  and  all  persons  of  that  class  ;  and  usurers 
who  lend  out  small  sums  at  exorbitant  rates :  for  all  these  take  from  improper 
sources,  and  take   more  than  they  ought."      Cicero,  De   Officiis,  ii.   at  end: 
"  Ex  quo  genere  comparationis  illud  est  Catonis  senis  :  a  quo  cum  quaereretur, 
quid  maxime  in  re  familiari  expediret,  respondit,  bene  pascere.     Quid  secundum  ? 
Satis  bene  pascere.    Quid  tertium  ?    Male  pascere.     Quid  quartum  ?    Arare.  .  .  . 
Et,  cum  ille,  qui  quaesierat,  dixisset^  quid  foenerari  ?  Turn  Cato,  quid  hominem, 
inquit,  occidere?"      Cato,  De  Re  Rustica :    "Majores  nostri  sic  habuerunt  et 
ita   in   legibus   posuerunt,  furem   dupli   condemnare,   foeneratorem   quadrupli. 
Quanto  pejorem   civem    existimarunt    foeneratorem    quam    furem,   hinc    licet 


CHAP.  I 


ARISTOTLE 


17 


One  passage  in  ancient  literature  has,  in  my  opinion, 
a  direct  value  for  the  history  of  theory,  inasmuch  as  it 
allows  us  to  infer  what  really  was  the  opinion  of  its  author 
on  the  economic  nature  of  interest ;  that  is,  the  often  quoted 
passage  in  the  first  book  of  Aristotle's  Politics.  He  there 
says :  "  Of  the  two  sorts  of  money-making  one,  as  I  have  just 
said,  is  a  part  of  household  management,  the  other  is  retail 
trade :  the  former  necessary  and  honourable,  the  latter  a  kind  of 
exchange  which  is  justly  censured ;  for  it  is  unnatural,  and  a  / 
mode  by  which  men  gain  from  one  another.  The  most  hated 
sort,  and  with  the  greatest  reason,  is  usury,  which  makes  a  gain 
out  of  money  itself,  and  not  from  the  natural  use  of  it.  For 
money  was  intended  to  be  used  in  exchange,  but  not  to  increase 
at  interest.  And  this  term  Usury  (TOKO?),  which  means  the 
birth  of  money  from  money,  is  applied  to  the  breeding  of  money, 
because  the  offspring  resembles  the  parent.  WTherefore  of  all 
modes  of  making  money  this  is  the  most  unnatural "  (Jowett's 
Translation,  p.  19). 

What  this  positively  amounts  to  may  be  summed  up  thus : 
money  is  by  nature  incapable  of  bearing  fruit ;  the  lender's  I 
gain  therefore  cannot  come  from  the  peculiar  power  of  the  / 
money ;  it  can  only  come  from  a  defrauding  of  the  borrower  \ 
(err'  d\\q\a)v  eVru>).  Interest  is  therefore  a  gain  got  by  ; 
abuse  and  injustice. 

That  the  writers  of  old  pagan  times  did  not  go  more 
deeply  into  the  question  admits  of  a  very  simple  explanation. 
The  question  was  no  longer  a  practical  one.  In  course  of 
time  the  authority  of  the  state  had  become  reconciled  to  the 
taking  of  interest.  In  Attica  interest  had  for  long  been  free 
from  legal  restriction.  The  universal  empire  of  Rome,  without 
formally  rescinding  those  severe  laws  which  entirely  forbade 
the  taking  of  interest,  had  first  condoned,  then  formally  sanc- 
tioned it  by  the  institution  of  legal  rates.1  The  fact  was  that 

existimarL"  Plautus,  Jlostellaria,  Act  iii  scene  1 :  "Videturne  obsecro  hercle 
idoneus,  Danista  qui  sit?  genus  quod  improbissimum  est.  . .  .  Nullnm  edepol  hodie 
genus  est  hominum  tetrius,  nee  minus  bono  cum  jure  quam  Danisticum."  Seneca, 
De  Benefidis,  vii.  10  :  "Quid  enim  ista  sunt,  quid  foenus  et  calendarium  et  usura, 
nisi  humanae  cupiditatis  extra  naturam  quaesita  nomina  ?  .  .  .  quid  sunt  istae 
tabellae,  quid  computationes,  et  venale  tempus  et  sanguinolentae  ceutesimae  ? 
voluntaria  mala  ex  constitution  nostra  pendentia,  in  quibus  nihil  est,  quod 
snbici  ocnlis,  quod  teneri  manu  possit,  mania  avaritiae  somnia." 
1  See  also  Knies,  Der  Kredit,  L  p.  330,  etc. 

C 


vV 

<4>- 


THE  OPPOSITION  TO  INTEREST  BOOK  i 

economical  relations  had  become  too  complicated  to  find  suffi- 
cient scope  under  a  system  naturally  so  limited  as  that  of 
gratuitous  credit.  Merchants  and  practical  men  were,  without 
exception,  steadily  on  the  side  of  interest.  In  such  circum- 
stances, to  write  in  favour  of  it  was  superfluous,  to  write 
against  it  was  hopeless ;  and  it  is  a  most  significant  indication 
of  this  state  of  matters  that  almost  the  only  quarter  in  which 
interest  was  still  censured — and  that  in  a  resigned  kind  of 
way — was  in  the  works  of  the  philosophical  writers. 

The    writers    of   the    Christian    Middle    Ages    had    more 
occasion  to  treat  the  subject  thoroughly. 

The  dark  days  which  preceded  and  followed  the  break  up 
of  the  Roman  Empire  had  brought  a  reaction  in  economical 
matters,  which,  in  its  turn,  had  the  natural  result  of 
strengthening  the  old  hostile  feeling  against  interest.  The 
peculiar  spirit  of  Christianity  worked  in  the  same  direction. 
The  exploitation  of  poor  debtors  by  rich  creditors  must  have 
appeared  in  a  peculiarly  hateful  light  to  one  whose  religion 
taught  him  to  look  upon  gentleness  and  charity  as  among  the 
greatest  virtues,  and  to  think  littlf  of  the  goods  of  this  world. 
l>ut  what  had  most  influence  was  that,  in  the  sacred  writings 
of  the  New  Testament,  were  found  certain  passages  which,  as 
usually  interpreted,  seemed  to  contain  a  direct  divine  prohibi- 
tion of  the  taking  of  interest.  This  was  particularly  true  of 
the  famous  passage  in  Luke  :  "  Lend,  hoping  for  nothing 
again."  l  The  powerful  support  which  the  spirit  of  the  time, 
already  hostile  to  interest,  thus  found  in  the  express  utterance 
of  divine  authority,  gave  it  the  po\ver  once  more  to  draw 
legislation  to  its  side.  The  Christian  Church  lent  its  arm. 
Step  by  step  it  managed  to  introduce  the  prohibition  into 
legislation.  First  the  taking  of  interest  was  forbidden  by  the 
Church,  and  to  the  clergy  only.  Then  it  was  forbidden  the 
laity  also,  but  still  the  prohibition  only  came  from  the  Church. 
At  last  even  the  temporal  legislation  succumbed  to  the  Church's 
influence,  and  gave  its  severe  statutes  the  sanction  of  Roman 
law.2 

1  Luke  vi.  35.  On  the  true  sense  of  this  passage  see  Knies  as  before,  p. 
333,  etc. 

-  On  the  spn-ad  of  the  prohibition  of  interest  see  Endemaun,  National- 
i-/.-iniontl»:}ic  (rmiuhatee,  p.  3,  etc. ;  Sfwtifti  in  der  romanisch-kanonistischcn 
W  irthsclutfts-und  llr.chtsh-ln-c,  p.  10,  etc. 


CHAP,  i  REACTION  FROM  AUTHORITY  19 

For  fifteen  hundred  years  this  turn  of  affairs  gave  abundant 
support  to  those  writers  who  were  hostile  to  interest.  The  old 
pagan  philosophers  could  fling  their  denunciations  on  the  world 
without  much  proving,  because  they  were  neither  inclined  nor 
able  to  give  them  practical  effect.  As  a  "  Platonic  "  utterance 
of  the  idealists  their  criticism  had  not  sufficient  weight  in  the 
world  of  practice  to  be  either  seriously  opposed  or  seriously 
defended.  But  now  the  matter  had  again  become  practical.  Once 
the  Word  of  God  was  made  victorious  on  earth,  a  hostility  im- 
mediately showed  itself,  against  which  the  righteousness  of 
the  new  laws  had  to  be  defended.  This  task  naturally  fell  to 
the  theological  and  legal  literature  of  the  Church,  and  thus 
began  a  literary  movement  on  the  subject  of  loan  interest 
which  accompanied  the  canonist  prohibition  from  its  earliest 
rise  far  into  the  eighteenth  century. 

About  the  twelfth  century  of  our  era  is  observable  a  note- 
worthy departure  in  the  character  of  this  literature.  Before 
that  century  the  controversy  is  mainly  confined  to  the  theo- 
logians, and  even  the  way  in  which  it  is  treated  is  essentially 
theological  To  prove  the  unrighteousness  of  loan  interest 
appeal  is  made  to  God  and  His  revelation,  to  passages  of 
Holy  Writ,  to  the  commandments  concerning  charity,  righteous- 
ness, and  so  on ;  only  rarely,  and  then  in  the  most  general 
terms,  to  legal  and  economical  considerations.  It  is  the  fathers 
of  the  Church  who  express  themselves  most  thoroughly  on  the 
subject,  although  even  their  treatment  can  scarcely  be  called 
thorough.1 

After  the  twelfth  century,  however,  the  discussion  is  con- 
ducted on  a  gradually  broadening  economic  basis.  To  proofs 
from  Eevelation  are  added  appeals  to  the  authority  of  revered 
fathers  of  the  Church,  to  canonists  and  philosophers — even 
pagan  philosophers, — to  old  and  new  laws,  to  deductions  from 
the  jus  divinum,  the  jus  humanum,  and — what  is  particularly 
important  for  us  as  touching  the  economic  side  of  the  matter 
— to  deductions  from  the  jus  naturcd.e.  And  now  the  lawyers 
begin  to  take  a  more  active  part  in  the  movement  alongside 
the  theologians — first  the  canon  lawyers  and  then  the  legists. 

The  very  ample  and  careful  attention  which  these  writers 
gave  to  the  subject  is  chiefly  due  to  the  fact  that  the  prohi- 

1  See  below. 


20  THE  OPPOSITION  TO  INTEREST  BOOK  i 

bition  of  interest  pressed  more  hardly  as  time  went  on,  and 
required  to  be  more  strongly  defended  against  the  reaction  of 
the  trade  it  oppressed.  The  prohibition  had  originally  been 
imposed  in  economical  circumstances  of  such  a  nature  that  it 
was  easily  borne.  Moreover,  during  its  first  hundred  years  the 
prohibition  had  so  little  command  of  external  force,  that  where 
practical  life  felt  itself  hampered  by  the  restraint  it  could 
disregard  it  without  much  danger.  But  later,  as  industiy  and 
commerce  grew,  their  increasing  necessity  for  credit  must  have 
made  the  hampering  effects  of  the  prohibition  increasingly 
vexatious.  At  the  same  time  the  prohibition  became  more  felt 
as  it  extended  to  wider  circles,  and  as  its  transgression  was 
punished  more  severely.  Thus  it  was  inevitable  that  its 
collisions  with  the  economical  world  should  become  much 
more  numerous  and  much  more  serious.  Its  most  natural  ally, 
public  opinion,  which  had  originally  given  it  the  fullest  support, 
began  to  withdraw  from  it.  There  was  urgent  need  of  assist- 
ance from  theory,  and  this  assistance  was  readily  obtained  from 
the  growing  science.1 

Of  the  two  phases  of  the  canonist  writings  on  this  subject, 
the  first  is  almost  without  value  for  the  history  of  theory. 
Its  theologising  and  moralising  do  little  more  than  simply 
express  abhorrence  of  the  taking  of  interest  and  appeal  to 
authorities.2 

Of  greater  importance  is  the  second  phase,  although 
neither  as  regards  the  number  of  its  writers  nor  the  very 

1  See  Endemann,  Studien,  pp.  11-13,  15,  etc. 

2  To  give  the  reader  some  idea  of  the  tone  which  the  fathers  of  the  Church 
adopted  in  dealing  with  the  subject  I  append  some  of  their  most  quoted  passages. 
Lactantius,  book  vi.  Divin.  Inst.  chap,  xviii.  says  of  a  just  man :   "  Pecuniae, 
si  quam  crediderit,  non  accipiet  usuram :  ut  et  beneficium  sit  incolume  quod 
succurat  necessitati,  et  abstineat  se  prorsus  alieno  in  hoc  enim  genere  officii 
debet  suo  esse  contentus,  quam  oporteat  alias  ne  proprio  quidem  parcere,  ut 
bonum  faciat.     Plus  autem  accipere,  quam  dederit,   injustum  est.     Quod  qui 
facit,  insidiatur  quodam  modo,  ut  ex  alterius  necessitate  praedetur. "    Ambrosius, 
De  Bono  Mortis,  chap.  xii.  :   "Si  quis  usuram  acciperit,  rapinam  facit,  vita  non 
vivit."     The  same  De  Tobia,  chap.  iii.  :   "Taliasunt  vestra,  divites  !  beneficia. 
Minus  datis,  il  plus  exigitis.     Talis  humanitas,  ut  spolietis  etiam  dum  subvenitis. 
Foecundus    vobis    etiam    pauper    est    ad    quaestum.      Usurarius    est    egenus, 
cogentibus  nobis,   habet  quod  reddat :    quod  impendat  non  habet. "     So  also 
chap.   xiv.  :    "Ideo  audiant  quid  lex  dicat :    Neque  usuram,  inquit,   escarum 
accipies,   neque  omnium  rerum."     Chrysostom  on  Matthew  xvii.   Homily  56  : 
"  Noli  mihi  dicere,  quaeso,  quid  gaudet  et  gratiam  habet,  quod  sibi  foenore 
pecuniam  colloces  :  id  enim  crudelitate  tua  coactus  fecit. "     Augustine  on  Psalm 


CHAP,  i  REACTION  FROM  AUTHORITY  21 

imposing  array  of  arguments  they  introduced.1  For  what 
originally  emanated  from  the  few  was  soon  slavishly  repeated 
by  the  many,  and  the  stock  of  arguments  collected  by  the 
earlier  writers  soon  passed  to  the  later  as  an  heirloom  that 
was  above  argument.  But  the  greater  number  of  these  argu- 
ments are  merely  appeals  to  authority,  or  they  are  of  a  moral- 
ising character,  or  they  are  of  no  force  whatever.  Only  a 
comparatively  small  number  of  them — mostly  deductions  from 
the  jus  naturale — can  lay  claim  to  any  theoretical  interest. 
If,  even  of  these  arguments,  many  should  appear  to  a  reader 
of  to-day  little  calculated  to  convince  anybody,  it  should  not 
be  forgotten  that  at  that  time  it  was  not  their  office  to  con- 
vince. What  man  had  to  believe  already  stood  fixed  and  fast. 
The  all-efficient  ground  of  conviction  was  the  Word  of  God, 
which,  as  they  understood  it,  had  condemned  interest.  The 
rational  arguments  which  were  found  to  agree  with  the  divine 
prohibition  were  scarcely  more  than  a  kind  of  flying  buttress, 
which  could  afford  to  be  the  slighter  that  it  had  not  to  carry 
the  main  burden  of  proof.2 

I  shall  very  shortly  state  those  rational  arguments  that 
have  an  interest  for  us,  and  verify  them  by  one  or  two 
quotations  from  such  writers  as  have  given  them  clear  and 
practical  expression. 

First  of  all,  we  meet  with  Aristotle's  argument  of  the 
barrenness  of  money  ;  only  that  the  theoretically  important 
point  of  interest  being  ?  parasite  on  the  produce  of  other 
people's  industry,  is  more  sharply  brought  out  by  the  canonists. 
Thus  Gonzalez  Tellez 3 :  "  So  then,  as  money  breeds  no  money,  it 
is  contrary  to  nature  to  take  anything  beyond  the  sum  lent,  and 
it  may  with  more  propriety  be  said  that  it  is  taken  from  industry 
than  from  money,  for  money  certainly  does  not  breed,  as  Aristotle 

cxxviii.  :  "Audent  etiam  foeneratores  dicere,  non  habeo  aliud  nnde  vivam. 
Hoc  mihi  et  latro  diceret,  deprehensus  in  fauce  :  hoc  et  effractor  diceret  .  .  .  et 
leno  .  .  .  et  maleficus."  The  same  (quoted  in  the  Dccret.  Grat.  chap.  i.  Causa 
xiv.  quaest.  3) :  "Si  plus  quam  dedisti  expectas  accipere  foeneratores,  et  in  hoc 
improbandus,  non  laudandus." 

1  Moliuaeus,  in  a  work  that  appeared  in  1546,  mentions  a  writer  who  had 
shortly  before  collected  no  less  than  twenty -five  arguments  against  interest 
(Tract.  Contract.  No.  528). 

"  See  Endemann,  Grundsdtze,  pp.  12,  18. 

3  Gommentaria  perpetua  in  singulos  textits  quinque  librorum  Decretalium 
Grcgorii  IX.  v.  chap.  iii.  ;  De  Usuris,  v.  chap.  xix.  No.  7. 


22  THE  OPPOSITION  TO  INTEREST  BOOK  i 

has  related."  And  in  still  plainer  terms  Covarruvias l :  "  The 
fourth  ground  is  that  money  brings  forth  no  fruit  from  itself, 
nor  gives  birth  to  anything.  On  this  account  it- is  inadmissible 
and  unfair  to  take  anything  over  and  above  the  lent  sum  for 
the  use  of  the  same,  since  this  is  not  so  much  taken  from  money, 
which  brings  forth  no  fruit,  as  from  the  industry  of  another." 

The  consumption  of  money  and  of  other  kinds  of  lent 
goods  furnished  a  second  "  natural  right "  argument.  This  is 
very  clearly  and  fully  put  by  Thomas  Aquinas.  He  contends 
that  there  are  certain  things  the  use  of  which  consists  in  the 
consumption  of  the  articles  themselves,  such  as  grain  and 
wine.  On  that  account  the  use  of  these  things  cannot  be  sep- 
arated from  the  articles  themselves,  and  if  the  use  be  transferred 
to  any  one  the  article  itself  must  necessarily  be  transferred  with 
it.  When  an  article  of  this  sort  then  is  lent  the  property  in 
it  will  always  be  transferred.  Now  it  would  evidently  be 
unjust  if  a  man  should  sell  wine,  and  yet  separate  therefrom 
the  use  of  the  wine.  In  so  doing  he  would  either  sell  the 
same  article  twice,  or  he  would  sell  something  which  did  not 
exist.  Exactly  in  the  same  way  is  it  unjust  for  a  man  to  lend 
things  of  this  sort  at  interest.  Here  also  he  asks  two  prices 
for  one  article;  he  asks  for  replacement  of  a  similar  article 
and  he  asks  a  price  for  the  use  of  the  article,  which  we  call 
interest  or  usury.  Now  as  the  use  of  money  lies  in  its  con- 
sumption or  in  its  spending,  it  is  inadmissible  in  itself,  on  the 
same  grounds,  to  ask  a  price  for  the  use  of  money.2  According 
to  this  reasoning  interest  appears  as  a  price  filched  or  extorted 
for  a  thing  that  does  not  really  exist,  the  separate  and  in- 
dependent "  use  "  of  consumable  goods. 

A  similar  conclusion  is  arrived  at  by  a  third  argument 
that  recurs  over  and  over  again  in  stereotyped  form.  The 
goods  lent  pass  over  into  the  property  of  the  debtor.  There- 
fore the  use  of  the  goods  for  which  the  lender  is  paid  interest 
is  the  use  of  another  person's  goods,  and  from  that  the  lender 

1  Variorum  Rcsolutionum,  Hi.  chap.  i.  No.  5. 

2  Summa  totius  Theologiae,  ii.  chap.  ii.  quaest.  78,  art.  1.     Similarly  Covar- 
ruvias:    "  Accipere  lucrum  aliquod  pro  usu  ipsius  rei,  et  demum  rem  ipsam, 
iniquum  est  et  prava  commutatio,  cum  id  quod  non  est  pretio  vendatur  .  .  .  aut 
enim  creditor  capit  lucrum  istud  pro  sorte,  ergo  bis  capit  ejus  aestimationem, 
vel  capit  injustum  sortis  valorem.     Si  pro  usu  rei,  is  non  potent  seorsum  a  sorte 
aestimari,  et  sic  bis  sors  ipsa  venditur." 


CHAP.   I 


THE  FOUR  CANON  ARGUMENTS 


23 


cannot  draw  a  profit  without  injustice.  Thus  Gonzalez  Tellez  : 
"  For  the  creditor  who  makes  a  profit  out  of  a  thing  belonging 
to  another  person  enriches  himself  at  the  hurt  of  another."  And 
still  more  sharply  Vaconius  Vacuna l :  "  Therefore  he  who  gets 
fruit  from  that  money,  whether  it  be  pieces  of  money  or  anything 
else,  gets  it  from  a  thing  which  does  not  belong  to  him,  and  it 
is  accordingly  all  the  same  as  if  he  were  to  steal  it." 

Lastly,  in  a  very  strange  argument,  first,  I  believe,  incor- 
porated by  Thomas  Aquinas  in  the  canonists'  repertoire,  interest 
is  looked  upon  as  the  hypocritical  and  underhand  price  asked 
for  a  good  common  to  all — -namely,  time.  The  usurers  who 
receive  more,  by  the  amount  of  their  interest,  than  they  have 
given,  seek  a  pretext  to  make  the  prohibited  business  appear 
a  fair  one.  This  pretext  is  offered  them  by  time.  They  would 
have  time  recognised  as  the  equivalent  for  which  they  receive 
the  surplus  income  formed  by  the  interest.  That  this  is  their 
intention  is -evident  from  the  fact  that  they  raise  or  reduce 
their  claim  of  interest  according  as  the  time  for  which  a  loan 
is  given  is  long  or  short.  But  time  is  a  common  good  that 
belongs  to  no  one  in  particular,  but  is  given  to  all  equally 
by  God.  When,  therefore,  the  usurer  would  charge  a  price 
for  time,  as  though  it  were  a  good  received  from  him,  he 
defrauds  his  neighbour,  to  whom  the  time  he  sells  already 
belongs  as  much  as  it  does  to  him,  the  seller,  and  he  defrauds 
God,  for  whose  free  gift  he  demands  a  price.2 

To  sum  up.  In  the  eyes  of  the  canonists  loan  interest  is 
simply  an  income  which  the  lender  draws  by  fraud  or  force 
from  the  resources  of  the  borrower.  The  lender  is  paid  in 
interest  for  fruits  which  barren  money  cannot  bear.  He  sells 
a  "  use "  which  does  not  exist,  or  a  use  which  already  belongs 
to  the  borrower.  And  finally,  he  sells  time,  which  belongs  to 
the  borrower  just  as  much  as  it  does  to  the  lender  and  to  all 
men.  In  short,  regard  it  as  we  may,  interest  always  appears 
as  a  parasitic  profit,  extorted  or  filched  from  the  defrauded 
borrower. 

This  judgment  was  not  applied  to  the  interest  that  accrues 
from  the  lending  of  durable  goods,  such  as  houses,  furniture, 

1  Lib.  i.  Nov.  Dcclar.  Jus.  Civ.  chap.  xiv.  quoted  in  Bbhmer's  Jus  Eccles. 
Prot.  Halle,  1736,  p.  340. 

a  Thomas  Aquiuas,  De  Usuris,  i.  chap.  iv. 


24  THE  OPPOSITION  TO  INTEREST  BOOK  i 

etc.  Just  as  little  did  it  affect  the  natural  profit  acquired  by 
personal  exertions.  That  this  natural  profit  might  be  an 
income  distinct  from  that  due  to  the  undertaker  for  his  labour, 
was  but  little  noticed,  especially  at  the  beginning  of  the  period ; 
and,  so  far  as  it  was  noticed,  little  thought  was  given  to  it. 
At  any  rate  the  principle  of  this  kind  of  profit  was  not  chal- 
lenged. Thus,  e.g.  the  canonist  Zabarella l  deplores  the  existence 
of  loan  interest  on  this  ground  among  others,  that  the  agri- 
culturists, looking  for  a  "  more  certain  "  profit,  would  be  tempted 
to  put  their  money  out  at  interest  rather  than  employ  it  in 
production,  and  thus  the  food  of  the  people  would  suffer, — a 
line  of  thought  which  evidently  sees  nothing  objectionable  in 
the  investment  of  capital  in  agriculture,  and  the  profit  drawn 
from  that  It  was  not  even  considered  necessary  that  the 
owner  of  capital  should  employ  it  personally,  if  only  he  did 
not  let  the  ownership  of  it  out  of  his  hands.  Thus  profit 
made  from  a  sleeping  partnership  was,  at  least,  not  forbidden.2 
And  the  case  where  one  entrusts  another  with  a  sum  of  money, 
but  retains  the  ownership  of  it,  is  decided  by  the  stern  Thomas 
Aquinas  in  the  words :  that  such  an  one  may  unhesitatingly 
appropriate  the  profit  resulting  from  the  sum  of  money.  He  need 
not  want  for  a  just  title  to  it,  "  for  he,  as  it  were,  receives  the 
fruit  of  his  own  estate" — not,  as  the  holy  Thomas  carefully 
adds,  a  fruit  that  springs  directly  from  the  coins,  but  a  fruit 
that  springs  from  those  things  that  have  been  obtained  in 
just  exchange  for  the  coins.3 

Where,  as  not  seldom  occurs  notwithstanding  this,  exception 
is  taken  to  profit  obtained  by  personal  exertions,  the  exception 
is  not  so  much  to  the  profit  as  such,  as  to  some  concrete  and 
objectionable  manner  of  getting  it :  as,  e.g.  by  business  conducted 
in  an  avaricious  or  quite  fraudulent  way,  or  by  forbidden  traffic 
in  money,  and  such  like. 

1  Secundo  (usura  est  prohibits)  ex  fame,  nam  laborantes  rustic!  praedia  colentes 
libentius  ponerent  pecuniam  ad  usuras,  quam   in  laboratione,   cum  sit  tutius 
lucrum,  et  sic  non  curarent  homines  seminare  seu  metere." — See  Endemann,  Na- 
tional'Skonomische  Grundsdize,  p.  20. 

2  Endemann,  Studien,  i.  p.  361.  *  De  Usuris,  ii.  chap.  iv.  qn.  1. 


CHAPTER   II 

THE   DEFENCE    OF   INTEREST   FROM   THE    SIXTEENTH   TILL    THE 
EIGHTEENTH    CENTURY 

THE  canon  doctrine  of  interest  had  to  all  appearance  reached 
its  zenith  sometime  during  the  thirteenth  century.  Its  prin- 
ciples held  almost  undisputed  sway  in  legislation,  temporal  as 
well  as  spiritual  Pope  Clement  V,  at  the  Council  of  Vienna 
in  1311,  could  go  so  far  as  to  threaten  with  excommuni- 
cation those  secular  magistrates  who  passed  laws  favourable 
to  interest,  or  who  did  not  repeal  such  laws,  where  already 
passed,  within  three  months.1  Nor  were  the  laws  inspired 
by  the  canon  doctrine  content  with  opposing  interest  in  its 
naked  and  undisguised  form ;  by  the  aid  of  much  ingenious 
casuistry  they  had  even  taken  measures  to  prosecute  it 
under  many  of  the  disguises  by  which  the  prohibition  had 
been  evaded.2  Finally,  literature  no  less  than  legislation  fell 
under  the  sway  of  the  canon  doctrine,  and  for  centuries  not 
a  trace  of  opposition  to  the  principle  of  the  prohibition  dared 
show  itself. 

There  was  only  one  opponent  that  the  canon  doctrine  had 
never  been  entirely  able  to  subdue,  the  economic  practice  of 
the  people.  In  face  of  all  the  threatened  penalties  of  earth 
and  heaven,  interest  continued  to  be  offered  and  taken ;  parlly 
without  disguise,  partly  under  the  manifold  forms  which  the 
inventive  spirit  of  the  business  classes  had  devised,  and  by  which 
they  slipped  through  the  meshes  of  the  prohibitionist  la  >vs  in  spite 
of  all  their  casuistry.  And  the  more  flourishing  the  economical 

1  Clem.  c.  un.  de  Jsuris,  6.  5. 
*  See  Endemann,  Gr^ndsatzc,  pp.  9,  21. 


26  THE  DEFENCE  OF  INTEREST  BOOK  i 

condition  of  a  country  the  stronger  was  the  reaction  of  practice 
against  the  dominant  theory. 

In  this  battle  victory  remained  with  the  more  stubborn 
party,  and  that  party  was  the  one  whose  very  existence  was 
endangered  by  the  prohibition. 

One  of  its  first  results,  not  marked  by  much  outward 
circumstance,  but  actually  of  great  importance,  was  obtained 
even  when  the  canon  doctrine  was  still,  to  all  appearance,  at 
the  height  of  its  authority.  Too  weak  to  hazard  open  war 
against  the  principle  of  prohibition,  the  business  world  yet 
managed  to  prevent  its  strict  and  complete  legal  enforcement, 
and  to  establish  a  number  of  exceptions  some  direct  and  some 
indirect. 

The  following,  among  others,  may  be  regarded  as  direct 
exceptions :  the  privileges  of  the  Mons  de  Piete,  the  tolera- 
tion of  other  kinds  of  banks,  and  the  very  extensive  indulgence 
shown  to  the  usury  practices  of  the  Jews — an  indulgence  which, 
here  and  there,  was  extended,  at  least  by  secular  legislation, 
into  a  formal  legal  permission.1 

Of  indirect  exceptions  there  were  :  the  buying  of  annuities, 
the  taking  of  land  in  mortgage  for  lent  money,  the  use  of  bills 
of  exchange,  partnership  arrangements,  and  above  all,  the  possi- 
bility of  getting  compensation  from  the  borrower  in  the  shape 
of  intcresse  on  the  deferred  payment  (damnum  etnergetis  ct 
hicrum  cessans).  Independent  of  this,  the  lender  had  had  a 
claim  to  compensation  in  the  shape  of  interessc,  but  only  in 
the  case  of  a  culpable  neglect  (technically  called  mora)  on 
the  part  of  the  borrower  to  fulfil  his  contract  obligations ;  and 
the  existence  and  amount  of  the  interesse  had  to  be  authen- 
ticated in  each  case.  But  now  a  step  farther  in  this  direction 
was  taken,  although  under  protest  of  the  strict  canonists,  by 
the  introduction  of  two  contract  clauses.  Under  one  clause 
the  borrower  agreed  beforehand  that  the  lender  should  be 
released  from  the  obligation  of  authenticating  the  borrower's 
mora ;  and  under  the  other  a  definite  rate  of  interessc  was 
agreed  on  in  advance.  Practically  it  came  to  this,  that  the 
loan  was  given  nominally  without  interest,  but  that  the  creditor 

1  The  opinion  very  commonly  held  that  the  Jews  were  generally  exempted 
from  the  Church's  prohibition  of  interest  is  pronounced  erroneous  by  the  late 
and  very  complete  work  of  Endemann  (Studien,  ii.  p.  383,  etc.) 


CHAP,  ii  COMPROMISE  27 

actually  received,  under  the  name  of  interessc,  a  regular  per- 
centage for  the  whole  period  of  the  loan,  the  borrower  by  a 
fiction  being  put  in  mora  for  that  period.1 

Practical  results  like  these  had  in  the  long  run  their  effect 
on  principles. 

To  the  observer  of  men  and  things  it  must  in  time  have 
become  questionable  whether  the  obstinate  and  always  increasing 
resistance  of  practical  life  really  had  its  root,  as  the  canonists 
affirmed,  only  in  human  wickedness  and  hardness  of  heart. 
Those  who  took  the  trouble  to  go  more  deeply  into  the  techni- 
calities of  business  life  must  have  seen  that  practice  not  only 
would  not,  but  could  not  dispense  with  interest ;  that  interest 
being  the  soul  of  credit,  where  credit  exists  to  any  considerable 
extent  interest  cannot  be  prevented ;  and  that  to  suppress  it 
would  be  to  suppress  nine-tenths  of  credit  transactions.  They 
must  have  seen,  in  a  word,  that,  even  in  a  half-developed 
system  of  economy,  interest  is  an  organic  necessity.  It  was 
inevitable  that  the  recognition  of  such  facts  that  had  for  long 
been  commonplaces  among  practical  men,  should  in  the  end 
force  its  way  into  literary  circles. 

The  effects  which  it  there  exerted  were  various. 

One  party  remained  unshaken  in  their  theoretical  convic- 
tion that  loan  interest  was  a  parasitic  profit,  admitting  of  no 
defence  before  any  strict  tribunal;  but  they  consented  to  a 
practical  compromise  with  the  imperfection  of  man,  on  which  they 
laid  the  blame  of  its  obstinate  vitality.  From  the  standpoint 
of  an  ideal  order  of  society,  interest  could  not  be  permitted,  but 
men  being  so  imperfect,  it  cannot  conveniently  be  eradicated, 
and  so  it  were  better  to  allow  it  within  certain  limits.  This 
was  the  view  taken,  among  others,  by  several  of  the  great 
reformers,  e.g.  as  Zwingli,2  by  Luther  in  his  later  days  (although 
earlier  he  had  been  a  relentless  enemy  of  usury),3  and,  with 
still  greater  reserve,  by  Melanchthon.4 

It  had  naturally  a  great  effect  on  public  opinion,  and 
indirectly  also  on  the  later  development  of  law,  that  such 

1  Endemann,  Stitdien,  ii.  pp.  243,  366. 

2  Wiskemann,   Darstellung  dcr  in  Deutschland   zur  Zeit  dcr  Reformation 
hcrrschendcn  national -bkonomischen  Ansichten  (Prize  Essays  of  the  Jablonow- 
ski'sche  Society,  vol.  x.  p.  71). 

3  Wiskemann,  p.  54.     Neumann,  Ocschichtc  des  Wuclwrs,  p.  480,  etc. 

4  Wiskemann,  p.  65. 


28  THE  DEFENCE  OF  INTEREST  BOOK  i 

influential  men  as  these  declared  for  tolerance  in  the  matter. 
However,  as  they  were  guided  in  their  conduct  not  by  prin- 
ciples, but  altogether  by  motives  of  expediency,  their  views 
have  no  deeper  importance  in  the  history  of  theory,  and 
we  need  not  pursue  them  farther. 

Another  party  of  thinking  and  observing  men  went  farther. 
Convinced  by  experience  of  the  necessity  of  loan  interest,  they 
began  to  re-examine  the  theoretical  foundations  of  the  prohibi- 
tion, and  finding  that  these  would  not  bear  investigation,  they 
commenced  to  write  in  opposition  to  the  canon  doctrine,  basing 
their  opposition  on  principles.  This  movement  becomes  observ- 
able about  the  middle  of  the  sixteenth  century,  gathers  impetus 
and  power  in  the  course  of  the  seventeenth,  and  towards  its 
end  obtains  so  distinct  an  ascendency  that  during  the  next 
hundred  years  it  has  only  to  do  battle  with  a  few  isolated 
writers  who  still  represent  the  canon  doctrine.  And  towards 
the  end  of  the  eighteenth  century  if  any  one  had  professed  to 
defend  that  doctrine  with  the  old  specific  arguments,  he  would 
have  been  thought  too  eccentric  to  be  taken  seriously. 

The  first  combatants  of  the  new  schdol  were  the  reformer 
Calvin  and  the  French  jurist  Dumoulin  (Carolus  Molinaeus). 

Calvin  has  defined  his  attitude  towards  our  question  in  a 
letter  to  his  friend  Oekolampadius.1  In  this  letter  he  does  not 
treat  it  comprehensively,  but  he  is  very  decided.  At  the  outset 
he  rejects  the  usual  authoritative  foundation  for  the  prohibition, 
and  tries  to  show  that,  of  the  writings  adduced  in  its  support, 
some  are  to  be  understood  in  a  different  sense,  and  some  have 
lost  their  validity  through  entire  change  of  circumstances.2 

The  proof  from  authority  being  thus  disposed  of,  Calvin 
turns  to  the  rational  arguments  usually  given  for  the  prohi- 
bition. Its  strongest  argument,  that  of  the  barrenness  of  money 
(pecunia  non  parit  pecuniani),  he  finds  of  "  little  weight."  It 
is  with  money  as  it  is  with  a  house  or  a  field.  The  roof  and 
walls  of  a  house  cannot,  properly  speaking,  beget  money,  but 
when  the  use  of  the  house  is  exchanged  for  money  a  legitimate 

1  Ep.  383,  in  the  collection  of  his  letters  and  answers,  Hanover,  1597. 

2  "Ac  primum  nullo  testimonio  Scripturae  mihi  constat  usuras  omnino  dam- 
natas  esse.     Ilia  enim  Christ!  sententia  qr,ae  maxime  obvia  et  aperta  haberi  solet : 
Mutuum  dato  uihil  inde  sperantes,  male  hue  detorta  est.  .  .  .  Lex  vero  Mosis 
politica  cum  sit,  non  tenemvir  ilia  ultra  quam  aequitas  ferat  atque  humanitas. 
Nostra  conjunctio  hodie  per  omnia  non  respondet.  ..." 


CHAP,  ii  CALVIN  29 

money  gain  may  be  drawn  from  the  house  In  the  same  way 
money  can  be  made  fruitful.  When  land  is  purchased  for 
money,  it  is  quite  correct  to  think  of  the  money  as  producing 
other  sums  of  money  in  the  shape  of  the  yearly  revenues  from 
the  land.  Unemployed  money  is  certainly  barren,  but  the 
borrower  does  not  let  it  lie  unemployed.  The  borrower  there- 
fore is  not  defrauded  in  having  to  pay  interest.  He  pays  it 
ex  proventu,  out  of  the  gain  that  he  makes  with  the  money. 

But  Calvin  would  have  the  whole  question  judged  in  a 
reasonable  spirit,  and  he  shows,  by  the  following  example,  how 
the  lender's  claim  of  interest  may,  from  this  point  of  view, 
be  well  grounded. 

A  rich  man  who  has  plenty  of  landed  property  and  general 
income,  but  little  ready  money,  applies  for  a  money  loan  to 
one  who  is  not  so  wealthy,  but  happens  to  have  a  great 
command  over  ready  money.  The  lender  could  with  the 
money  purchase  land  for  himself,  or  he  could  request  that  the 
land  bought  with  his  money  be  hypothecated  to  him  till  the 
debt  is  wiped  out.  If,  instead  of  doing  so,  he  contents  himself 
with  the  interest,  the  fruit  of  the  money,  how  should  this  be 
blameworthy  when  the  much  harder  bargain  is  regarded  as 
fair  ?  As  Calvin  vigorously  expresses  it,  that  were  a  childish 
game  to  play  with  God, "  Et  quid  aliud  est  quam  puerorum  instar 
ludere  cum  Deo,  cum  de  rebus  ex  verbis  nudis,  ac  non  ex  eo  quod 
inest  in  re  ipsa  judicatur." 

He  concludes  then  that  the  taking  of  interest  cannot  be 
universally  condemned.  But  neither  is  it  to  be  universally 
permitted,  but  only  so  far  as  it  does  not  run  counter  to  fairness 
and  charity.  In  carrying  out  this  principle  he  lays  down  a 
number  of  exceptions  in  which  interest  is  not  to  be  allowed. 
The  most  noteworthy  of  these  are :  that  no  interest  should  be 
asked  from  men  who  are  in  urgent  need ;  that  due  considera- 
tion should  be  paid  to  the  "poor  brethren";  that  the  "welfare 
of  the  state "  should  be  considered ;  and  that  the  maximum 
rate  of  interest  established  by  the  laws  should  in  no  case  be 
exceeded. 

As  Calvin  is  the  first  theologian,  so  Molinaeus  is  the  first 
jurist  to  oppose  the  canon  prohibition  on  theoretical  grounds. 
Both  writers  agree  in  their  principles,  but  the  way  in  which 
they  state  them  differs  as  widely  as  do  their  callings.  Calvin 


30  THE  DEFENCE  OF  INTEREST  BOOK  i 

goes  shortly  and  directly  at  what  to  him  is  the  heart  of  the 
matter,  without  troubling  himself  to  refute  secondary  objections. 
Thus  he  gets  his  convictions  more  from  impressions  he  receives 
than  from  logical  argument.  Molinaeus,  on  the  other  hand,  is 
inexhaustible  in  distinctions  and  casuistry.  He  is  indefati- 
gable in  pursuing  his  opponents  in  all  their  scholastic  turnings 
and  twistings,  and  takes  the  most  elaborate  pains  to  confute 
them  formally  and  point  by  point.  Moreover,  although  more 
cautious  in  expression  than  the  impetuous  Calvin,  he  is  quite 
as  frank,  pithy,  and  straightforward. 

The  principal  deliverance  of  Molinaeus  on  the  subject  is 
the  Tractatus  Contraduum  et  Usurarutn  redituumque  pecunia 
Constitutorum,1  published  in  1546.  The  first  part  of  it  has 
a  great  resemblance,  perhaps  accidental,  to  Calvin's  line  of 
argument.  After  a  few  introductory  definitions,  he  turns  to  the 
examination  of  the  jus  divinum,  and  finds  that  the  relevant  pas- 
sages of  Holy  Writ  are  misinterpreted.  They  are  not  intended  to 
forbid  the  taking  of  interest  in  general,  but  only  such  interest 
as  violates  the  laws  of  charity  and  brotherly  lova  And  then 
he  also  introduces  the  effective  illustration  used  by  Calvin  of 
the  rich  man  who  purchases  land  with  borrowed  money.2 

But  further  on  the  reasoning  is  much  fuller  than  that  of 
Calvin.  He  points  out  conclusively  (No.  75)  that  in  almost 
every  loan  there  is  an  "  interesse  "  of  the  creditor — some  injury 
caused  or  some  use  foregone, — the  compensation  for  which  is 
just  and  economically  necessary.  This  compensation  is  interest 
or  usura,  in  the  right  and  proper  sense  of  the  word.  The  laws 
of  Justinian  which  allow  interest,  and  only  limit  its  amount, 
are  consequently  not  to  be  considered  unjust,  but  actually  in 
the  interest  of  the  borrower,  inasmuch  as  the  payment  of  a 
moderate  interest  gives  him  the  chance  of  making  a  greater 
profit  (No.  76). 

Later  (No.  528)  Molinaeus  passes  under  review  the  chief 
arguments  of  the  canonists  against  interest,  and  completely 
refutes  them  by  a  running  commentary. 

To  the  old  objection  of  Thomas  Aquinas,  that  the  lender 
who  takes  interest  either  sells  the  same  thing  twice,  or  sells 

1  Previous  to  this,  in  the  same  year,  was  published  the  Extricatio  Labyrinihi 
dc  co  qiuxl  Intei-cst,  in  which  the  question  of  interesse  was  freely  handled,  but 
no  definite  side  taken  on  the  interest  question. — See  Endemann,  Studicn,  i.  p.  63. 

a  Tractatus,  No.  10. 


CHAP,  n  MOLINAEUS  31 

something  that  has  no  existence  at  all  (vide  p.  22),  Molinaeus 
answers  that  the  use  of  money  is  a  thing  independent  of  the 
capital  sum,  and  consequently  may  be  sold  independently. 
We  must  not  regard  the  first  immediate  spending  of  the  money 
as  its  use :  the  use  that  follows — the  use  of  those  goods  that 
a  man  has  acquired  by  means  of  the  loaned  money,  or  has  got 
command  over — is  also  its  use  (Nos.  510,  530).  If,  further, 
it  be  maintained  that,  along  with  the  money  itself,  its  use  also 
has  passed  over  into  the  legal  property  of  the  borrower,  and 
that  lie  therefore  is  paying  in  interest  for  his  own  property, 
Molinaeus  answers  (No.  530)  that  one  is  quite  justified  in 
selling  another  man's  property  if  it  be  a  debt  due  him,  and 
that  this  is  exactly  the  case  with  loans :  "  Usus  pecuniae  mi  hi 
pure  a  te  debitae  est  mihi  pure  a  te  debitus,  ergo  vel  tibi  vendere 
possum." 

Finally,  to  the  argument  of  the  natural  barrenness  of  money 
Moliuaeus  replies  (No.  530)  that  the  everyday  experience  of 
business  life  shows  that  the  use  of  any  considerable  sum  of 
money  yields  a  service  of  no  trifling  importance,  and  that  this 
service,  even  in  legal  language,  is  designated  as  the  "  fruit "  of 
v  money.  To  argue  that  money  of  itself  can  bring  forth  no  fruit 
is  not  to  the  point,  for  even  land  brings  forth  nothing  of  itself 
without  expense,  exertion,  and  human  industry.  And  quite 
in  the  same  way  does  money  when  assisted  by  human  effort 
bring  forth  notable  fruits.  The  rest  of  the  polemic  against  the 
canonists  has  little  theoretical  interest. 

On  the  basis  of  this  comprehensive  consideration  of  the  sub- 
ject, Molinaeus  ends  by  formulating  his  thesis  (No.  535) :  First 
of  all,  it  is  necessary  and  useful  that  a  certain  practice  of  taking 
interest  be  retained  and  permitted.  The  contrary  opinion,  that 
interest  in  itself  is  absolutely  objectionable,  is  foolish,  pernicious, 
and  superstitious  (Stulta  ilia  ct  non  minus  perniciosa  quam  supcr- 
stitiosa  opinio  de  usura  dc  se  absoluta  mala}  (No.  534). 

In  these  words  Molinaeus  sets  himself  in  the  most  direct 
opposition  to  the  Church's  doctrine.  To  modify  them  in  some 
degree — as  a  Catholic  might  be  compelled  to  do  from  other 
considerations — he  makes  certain  practical  concessions,  without, 
however,  yielding  anything  in  principle.  The  most  important 
of  these  is  that,  on  grounds  of  expediency,  and  on  account  of 
prevailing  abuses,  he  acquiesces  for  the  present  in  the  Church's 


32  THE  DEFENCE  OF  INTEREST  BOOK  i 

prohibition  of  interest  pure  and  simple  in  the  shape  of  un- 
disguised usury,  wishing  to  retain  only  the  milder  and  more 
humane  form  of  annuities, — which,  however,  he  rightly  looks 
on  as  a  "  true  species  of  usury  business." 1 

The  deliverances  of  Calvin  and  Molinaeus  remained  for 
a  long  time  quite  by  themselves,  and  the  reason  of  this  is 
easily  understood.  To  pronounce  that  to  be  right  which  the 
Church,  the  law,  and  the  learned  world  had  condemned  with 
one  voice,  and  opposed  with  arguments  drawn  from  all  sources, 
required  not  only  a  rare  independence  of  intellect,  but  a  rare 
strength  of  character  which  did  not  shrink  from  suspicion  and 
persecution.  The  fate  of  the  leaders  in  this  movement  showed 
clearly  enough  that  there  was  cause  for  fear.  Not  to  mention 
Calvin,  who,  indeed,  had  given  the  Catholic  world  quite  other 
causes  of  offence,  Molinaeus  had  much  to  suffer;  he  himself 
was  exiled,  and  his  book,  carefully  and  moderately  as  it  was 
written,  was  put  on  the  Index.  Nevertheless  the  book  made  its 
way,  was  read,  repeated,  and  published  again  and  again,  and  so 
scattered  a  seed  destined  to  bear  fruit  in  the  end.2 

Passing  over  the  immediate  disciples  of  Calvin,  who 
naturally  agreed  with  the  views  of  their  master,  there  were 
few  writers  in  the  sixteenth  century  who  ventured  to  argue  in 
favour  of  interest  on  economical  grounds.  Among  them  may  be 
specially  mentioned  the  humanist  Camerarius,3  Bornitz,4  and 
above  all,  Besold. 

Besold  argues  fully  and  ably  against  the  canon  doctrine 
in  the  dissertations  entitled  Questiones  Aliquot  de  Usuris, 
(1598),  the  work  with  which  he  began  his  very  prolific  career 

1  "  Ea  taxatio  "  (the  fixing  of  a  maximum  rate  which  was  attached  to  the 
principle  of  the  permission  of  interest  in  Justinian's  Code)  "nunquam  in  se  fuit 
iniqua.     Sed  ut  tempore  suo  summa  et  absoluta,  ita  processu  temporis  propter 
abusum  hominum  nimis  in  quibusdam  dissoluta  et  vaga  inventa  est,  et  omnino 
super  foenore  negociativo  forma  juris  civilis  incommoda  et  perniciosa  debitoribus 
apparuit.     Unde  merito  abrogata  fuit,  et  alia  tutior  et  commodior  forma  inventa, 
videlicet  per  abalienationem  sortis,  servata  debitori  libera  facilitate  luendi.     Et 
haec  forma  nova,  ut  mitior  et  civilior,  ita  minus  habet  de  ratione  foenoris,  propter 
alienationem  sortis,  quam  forma  juris  civilis.     Est  tamen  foenus  large  sumptum, 
et  vera  species  negociationis  foenoratoriae.  .  .  ."  (No.  536) 

2  Endemann,  Studien,  i.  p.   64,  etc.     Endemann,  however,  underrates  the 
influence  that  Molinaeus  had  on  the  later  development.     See  below. 

3  In  his  notes  on  Aristotle's  Politics ;  see  Roscher,  Geschichte  der  National- 
Oekonomik  in  Deutschland,  p.  54. 

4  Roscher,  ibid.  p.  188. 


CHAP,  ii  BESOLD  33 

as  a  writer.1  He  finds  the  origin  of  interest  in  the  institutions 
of  trade  and  commerce,  in  which  money  ceases  to  be  barren. 
And  as  every  man  must  be  allowed  to  pursue  his  own 
advantage,  so  far  as  that  is  possible  without  injury  to 
others,  natural  justice  is  not  opposed  to  the  taking  of  interest. 
Like  Molinaeus,  whom  he  often  quotes  with  approval,  he 
adduces  on  its  behalf  the  analogy  between  the  loan  against 
interest  and  the  hire  against  payment.  The  loan  at  interest 
stands  to  the  loan  not  at  interest  in  the  same  relation  as  the 
hire  against  payment — which  is  perfectly  allowable — to  the 
Leihe,  where  no  payment  is  required  (commodatum).  He 
points  out  very  well  that  the  height  of  loan  interest  must  at 
all  times  correspond  with  the  height  of  natural  interest,  the 
latter  indeed  being  the  ground  and  source  of  the  former ;  and 
he  maintains  that,  where,  owing  to  the  use  of  money,  the 
current  rate  of  profit  is  higher,  a  higher  limit,  of  loan  interest 
should  be  allowed  (p.  32).  Finally,  he  is  as  little  impressed 
by  the  passages  in  Holy  Writ  which  have  been  interpreted  as 
forbidding  interest  (p.  38,  etc.)  as  by  the  arguments  of  the 
"  philosophers," — considering  these  arguments  very  weak  if  one 
looks  at  the  matter  from  the  proper  standpoint  (p.  32). 

From  this  short  abstract  it  will  be  seen  that  Betfold  is  a 
frank  and  able  follower  of  Molinaeus.  From  Molinaeus  indeed, 
as  the  numerous  quotations  show,  he  has  taken  the  better  part 
of  his  doctrine.2  But  it  would  be  difficult  to  find  in  his  writ- 
ings any  advance  on  that  author.3 

This  is  still  more  true  of  the  great  English  philosopher 
Bacon,  who  wrote  on  the  subject  almost  contemporaneously 
with  Besold,  He  is  not  misled  by  the  old  ideas  of  the 
"  unnaturalness "  of  interest.  He  has  enough  intellectual 

1  Besold  resumed  the  discussion  later,  in  an  enlarged  and  improved  form,  as 
he  says,  in  another  work,  Vitae  et  Mortis  Consideratio  Politico,  (1623),  in  which 
it  occupies  the  fifth  chapter  of  the  first  book.     I  had  only  this  latter  work  at 
my  disposal,  and  the  quotations  in  the  text  are  taken  from  it. 

2  There  is  a  long  quotation  even  in  the  first  chapter  of  the  first  book  (p.  6). 
In  the  fifth  chapter  the  quotations  are  numerous. 

3  I  think  Roscher  (Geschichte  der  National -Oekonomik,  p.  201)  does  Besold 
too  much  honour  when,  in  comparing  him  with  Salmasius  and  Hugo  Grotius, 
he  gives  him  the  honourable  position  of  a  forerunner  on  whom  Salmasius  has 
scarcely  improved,  and  to  whom  Grotius  is  even  inferior.     Instead  of  Besold, 
who  drew  at  second  hand,  Reseller  should  have  named  Molinaeus.     Besold  is  not 
more  original  than  Salmasius,  and  certainly  less  adroit  and  ingenious. 

D 


34  THE  DEFENCE  OF  INTEREST  BOOK  i 

freedom  and  apprehension  of  the  needs  of  economic  life  to 
weigh  impartially  its  advantages  and  disadvantages,  and  to 
pronounce  interest  an  economical  necessity.  But  nevertheless 
he  gives  it  sufferance  only  on  the  ground  of  expediency. 
"  Since  of  necessity  men  must  give  and  take  money  on  loan, 
and  since  they  are  so  hard  of  heart  (sintque  tarn  duro  corde) 
that  they  will  nrt  *end  it  otherwise,  there  is  nothing  for  it  but 
that  interest  should  be  permitted."  l 

In  the  course  of  the  seventeenth  century  the  new  doctrine 
made  great  strides,  particularly  in  the  Netherlands.  There 
the  conditions  were  peculiarly  favourable  to  its  further 
development.  During  the  political  and  religious  troubles 
among  which  the  young  free  state  was  born,  men  had  learned 
to  emancipate  themselves  from  the  shackles  of  a  slavish 
following  of  authority.  It  happened  too  that  the  decaying 
theory  of  the  fathers  of  the  Church  and  of  the  scholastics 
nowhere  came  into  sharper  conflict  with  the  needs  of  actual 
life  than  in  the  Netherlands,  where  a  highly  developed 
economy  had  created  for  itself  a  complete  system  of  credit 
and  banking ;  where,  consequently,  transactions  involving 
interest  were  common  and  regular;  and  where,  moreover, 
temporal  legislation,  yielding  to  the  pressure  of  practice,  had 
long  allowed  the  taking  of  interest.2  In  such  circumstances 
a  theory  which  pronounced  interest  to  be  a  godless  defrauding 
of  the  debtor  was  unnatural,  and  its  continuance  for  any  length 
of  time  was  an  impossibility. 

Hugo  Grotius  may  be  regarded  as  forerunner  of  the  change. 

His  attitude  towards  our  subject  is  peculiarly  nondescript. 
On  the  one  hand,  he  clearly  recognises  that  it  is  not  possible  to 
base  the  prohibition  theoretically  in  natural  right,  as  the  canonists 
had  done.  He  sees  no  force  in  the  argument  of  the  barrenness 
of  money,  for  "  houses  also,  and  other  things  barren  by  nature, 
the  skill  of  man  has  made  productive."  To  the  argument  that 
the  use  of  money,  consisting  as  it  does  in  being  spent,  cannot 
be  separated  from  money  itself,  and  therefore  cannot  be  paid 
for  independently,  he  finds  an  apt  rejoinder ;  and,  speaking 
generally,  the  arguments  which  represent  interest  as  contrary 
to  natural  right  appear  to  him  "not  of  a  kind  to  compel 

1  Sermones  Fideles,  cap.  xxxix.  (1597) 

-  See  Grotius,  DC  Jure  Pacis  ac  Belli,  book  ii.  chap.  xii.  p.  22. 


CHAP,  ii  GROTIUS,  SALMASIUS  35 

assent"  (non  talia  ut  a-ssensum  cxtorqucanf).  But,  on  the 
other  hand,  he  considers  the  passages  in  Holy  Writ  forbidding 
interest  to  be  undoubtedly  binding.  So  that  in  his  con- 
clusions he  remains  —  in  principle  at  least  —  on  the  side  of 
the  canonists.  Practically  he  does  resile  from  the  principle  of 
prohibition  by  allowing  and  approving  of  many  kinds  of  com- 
pensation for  loss,  for  renunciation  of  profit,  for  lender's  trouble 
and  risk,  —  describing  these  as  "  of  the  nature  of  interest."  l 

Thus  Grotius  takes  a  hesitating  middle  course  between  the 
old  and  the  new  doctrine.2 

Undecided  views  like  these  were  speedily  left  behind.  In 
a  few  years  more  others  openly  threw  overboard  not  only  the 
rational  basis  of  the  prohibition  as  he  had  done,  but  the 
prohibition  itself.  The  decisive  point  was  reached  shortly 
before  the  year  1640.  As  if  the  barriers  of  long  restraint 
had  all  been  torn  down  in  one  day,  a  perfect  flood  of 
writings  broke  out  in  which  interest  was  defended  with 
the  utmost  vigour,  and  the  flood  did  not  fall  till  the  prin- 
ciple of  interest,  in  the  Netherlands  at  least,  had  con- 
quered. In  this  abundant  literature  the  first  place,  both  in 
time  and  rank,  was  taken  by  the  celebrated  Claudius 
Salmasius.  Of  his  writings,  which  from  1638  followed 
each  other  at  short  intervals,  the  most  important  are  : 
De  Usuris,  1638;  De  Modo  Usurarum,  1639;  De  Foenore 
Trapezitico,  1640.  To  these  may  be  added  some  shorter 
controversial  writings  that  appeared  under  the  pseudonym 
of  Alexius  a  Massalia  :  Diatriba  de  Mutuo  :  mutuum 
esse  alienationem,  1640.3  These  writings  almost  by 


1  De  Jure  Pacis  ac  Belli,  book  ii.  cap.  xii.  pp.  20,  21. 

2  Thus  it  is  not  possible  to  regard  Grotius  as  a  pioneer  of  the  new  theory. 
This    view,   held    among    others    by    Neumann,    Geschichtc    dcs    IVuchcrs    in 
Deutschland,  p.  499,  and  by  Laspeyres,  Geschichtc,  pp.  10  and  257,  is  authorita- 
tively corrected  by  Endemann,  Studien,  I.  p.  66,  etc. 

3  The  list  of  writings  in  which  our  extremely  prolific  author  expatiates  on 
the  subject  of  interest  is  by  no  means  exhausted  by  the  works  mentioned  in  the 
text.      There  is,  e.g.   a  Disquisitio  de  Mutuo,   qua  probatur  non   esse   aliena- 
tioucm,  of  the  year  1645,  whose  author  signs  with   the  initials  S.  D.  B.,  a 
signature  which  points,  as  does  the  whole  style  of  writing,  to  Salmasius  (Dijonicus 
Burgundus).      There   is    besides   in    the    same  year  an   anonymous    writing, 
also  undoubtedly  traceable  to  Salmasius,  Confutatio  Diairibae  de  Mutuo  tribus 
disputationibus  xcittilatae,  auctorc  et  preside  Jo.  Jacobo  Visscmbachio,  etc.     Those 
named  in  the  text,  however,  were  the  first  to  break  ground. 


36  THE  DEFENCE  OF  INTEREST  BOOK  i 

themselves  determined  the  direction  and  substance  of  the 
theory  of  interest  for  more  than  a  hundred  years,  and  even 
in  the  doctrine  of  to-day,  as  we  shall  see,  we  may  recognise 
many  of  their  after-effects.  His  doctrine  therefore  deserves  a 
thorough  consideration. 

The  views  of  Salmasius  on  interest  are  put  together  most 
concisely  and  suggestively  in  the  eighth  chapter  of  his  book 
De  Usuris.  He  begins  by  giving  his  own  theory.  Interest  is 
a  payment  for  the  use  of  sums  of  money  lent.  Lending 
belongs  to  that  class  of  legal  transactions  in  which  the  use  of 
a  thing  is  made  over  by  its  owner  to  another  person.  In  the 
case  where  the  article  in  question  is  not  perishable,  if  the  use 
that  is  transferred  is  not  to  be  paid  for,  the  legal  transaction 
is  a  Commodatum :  if  it  is  to  be  paid  for,  the  transaction  is  a 
Locatio  or  Conductio.  In  the  case  where  the  article  in 
question  is  a  perishable  or  a  fungible  thing,  if  the  use  is  not  to 
be  paid  for,  it  is  a  loan  bearing  no  interest  (mutuum) :  if 
to  be  paid  for,  it  is  a  loan  at  interest  (foenus).  The  interest- 
bearing  loan  accordingly  stands  to  the  loan  which  bears  no 
interest  in  exactly  the  same  relation  as  the  Locatio  to  the 
Commodatum,  and  is  just  as  legitimate  as  it.1 

The  only  conceivable  ground  for  judging  differently  about 
the  allowableness  of  payment  in  the  case  of  the  Commodatum 
(where  a  non-perishable  good,  as  a  book  or  a  slave,  is 
lent)  as  compared  with  the  Mutuum  (where  a  fungible  good, 
like  corn  or  money,  is  lent)  might  be  the  different  nature 
of  the  "  use "  in  the  two  cases.  In  the  circumstances 
of  the  latter — where  a  perishable  or  fungible  good  is  trans- 
ferred— the  use  consists  in  one  complete  consumption ;  and 
it  might  be  objected  that,  in  such  a  case  the  use  of  a  thing 
could  not  be  separated  from  the  thing  itself.  But  to  this 
Salmasius  answers :  (1)  Such  an  argument  would  lead  as 
well  to  the  condemning  and  abolition  of  the  loan  bearing 
no  interest,  inasmuch  as  it  is  impossible,  in  the  case  of  a 
perishable  thing,  to  transfer  a  "  use,"  whose  existence  is  denied, 

1  "Quae  res  facit  ex  commodato  locatum,  eadem  praestat,  ut  pro  mutuo  sit 
foenus,  nempe  merces.  Qui  earn  in  commodato  probant,  cur  in  mutuo  improbent, 
nescio,  nee  ullam  hujus  diversitatis  rationem  video.  Locatio  aedium,  vestis 
animalis,  servi,  agri,  operae,  opens,  licita  erit ;  non  erit  foeneratio  quae  proprie 
locatio  est  pecuniae,  tritici,  hordei,  vini,  et  aliarum  hujusmodi  specierum 
frugumque  tarn  arentium  quam  humidarum  ? " 


CHAP,  ii  S ALMAS f US  37 

even  if  no  interest  is  asked  for  it.  (2)  On  the  contrary,  the 
perishableness  of  loaned  goods  constitutes  another  reason  why 
the  loan  should  be  paid.  For  in  the  case  of  the  hire  (locatio) 
the  lender  can  take  back  his  property  at  any  moment,  because 
he  remains  the  owner  of  it.  In  the  case  of  the  loan  he  cannot 
do  so,  because  his  property  is  destroyed  in  the  consumption. 
Consequently  the  lender  of  money  suffers  delays,  anxieties, 
and  losses,  and  by  reason  of  these  the  claim  of  the  loan  to 
payment  is  even  more  consistent  with  fairness  than  that  of 
the  Commodatum. 

After  thus  stating  his  own  position  Salmasius  devotes 
himself  to  refuting  the  arguments  of  his  opponents  point  by 
point.  As  we  read  these  refutations  we  begin  to  understand 
how  Salmasius  so  brilliantly  succeeded  where  Molinaeus  a 
hundred  years  before  had  failed,  in  convincing  his  contem- 
poraries. They  are  extremely  effective  pieces  of  writing, 
indeed  gems  of  sparkling  polemic.  The  materials  for  them 
were,  of  course,  in  great  part  provided  by  his  predecessors, 
principally  by  Molinaeus ; l  but  the  happy  manner  in 
which  Salmasius  employs  these  materials,  and  the  many  pithy 
sallies  with  which  he  enriches  them,  places  his  polemic  far 
above  anything  that  had  gone  before. 

It  may  not  be  unwelcome  to  some  of  my  readers  to  have 

1  To  prove  the  relation  in  which  Salmasius  stands  to  Molinaeus,  it  may  not 
be  superfluous,  considering  the  explicit  statement  of  Endemann  (Studien, 
i.  p.  65)  that  Salmasius  does  not  quote  Molinaeus,  to  establish  the  fact 
that  such  quotations  do  exist  in  considerable  number.  The  list  of  authors 
appended  to  the  works  of  Salmasius  shows  three  quotations  from  Molinaeus  for 
the  book  De  Usuris,  twelve  for  the  De  Mode  Usurarum,  and  one  for  the  DC 
Foenore  Trapezitico.  These  quotations  are  principally  taken  from  Molinaeus's  chief 
work  on  the  subject,  the  Contractus  Contractuum  et  Usurarum.  One  of  them  (De 
Usuris,  p.  21)  refers  directly  to  a  passage  which  stands  in  the  middle  of  the  most 
pertinent  of  his  writings  ( Tractatus,  No.  529.  Nos.  528,  etc.,  contain  the  statement 
and  refutation  of  the  arguments  of  the  ancient  philosophy  and  of  the  canonists 
against  interest).  There  can,  therefore,  be  no  doubt  that  Salmasius  accurately  knew 
the  writings  of  Molinaeus,  and  it  is  just  as  much  beyond  doubt — as  indeed  his  sub- 
stantial agreement  would  lead  us  to  suspect — that  he  has  drawn  from  them.  In 
the  Confutatio  Diatribae  mentioned  above  (p.  36)  it  is  said  in  one  place  (p.  290) 
that  Salmasius  at  the  time  when,  under  the  pseudonym  of  Alexis  a  Massalia,  he 
wrote  the  Diatriba  de  Mutuo,  was  not  acquainted  with  the  similar  writings  of 
Molinaeus  in  his  Tractatus  de  Usuris.  But  this  expression  must  only  relate  to 
his  ignorance  of  those  quite  special  passages  in  which  Molinaeus  denies  the  nature 
of  the  loan  as  an  alienation,  or  else,  if  what  I  have  said  be  true,  it  is  simple 
incorrect. 


33  THE  DEFENCE  OF  INTEREST  BOOK  i 

a  few  complete  examples  of  Salmasius's  style.  They  will 
serve  to  give  a  more  accurate  idea  of  the  spirit  in  which  people 
were  accustomed  to  deal  with  our  problem  in  the  seventeenth 
century,  and  far  into  the  eighteenth,  and  to  make  the  reader 
better  acquainted  with  a  writer  whom  nowadays  many  quote, 
but  few  read.  I  therefore  give  below  in  his  own  words  one  or 
two  passages  from  the  polemic.1 

What  follows  has  less  bearing  on  the  history  of  theory. 
First  comes  a  long-winded,  and,  it  must  be  confessed,  for  all 
its  subtlety  a  very  lame  attempt  to  prove  that  in  the  loan  there 
is  no  alienation  of  the  thing  lent — a  subject  to  which  also  the 
whole  Diatriba  de  Mutuo  is  devoted.  Then  follows  the  reply 
to  some  of  the  arguments  based  by  the  canonists  on  fairness 
and  expediency ;  such  as,  that  it  is  unfair  to  the  borrower, 
who  assumes  the  risk  of  the  principal  sum  lent  him,  to  burden 

1  Salmasius  begins  with  the  argument  of  the  improper  double  claim  for  one 
commodity.  His  opponents  had  contended  that  whatever  was  taken  over  and 
above  the  principal  sum  lent  could  only  be  taken  either  for  the  use  of  a  thing 
which  was  already  consumed — that  is  for  nothing  at  all — or  for  the  principal  sum 
itself,  in  which  case  the  same  thing  was  sold  twice.  To  this  replies  Salmasius  : 
"Quae  ridicula  sunt,  et  nul'o  negotio  difflari  possunt.  Non  enim  pro  sorte 
usnra  exigitur,  sed  pro  usu  s  <rtis.  Usus  autem  ille  non  est  nihilum,  nee  pro 
nihilo  datur.  Quod  haberet  rationem,  si  alicui  pecuniam  mutuam  darem,  ea  lege 
ut  statim  in  flumen  earn  projiceret  aut  alio  modo  perderet  sibi  non  profuturam. 
Sed  qui  pecuniam  ab  alio  mutuam  desiderat,  ad  necessaries  sibi  usus  illam  ex- 
petit.  Aut  enim  aedes  hide  comparat,  quas  ipse  habitet,  ne  in  conducto  diutius 
maneat,  vel  quas  alii  cum  ft  actu  et  compendio  locet :  aut  fundum  ex  ea  pecunia 
emit  salubri  pretio,  unde  fructus  et  reditus  magnos  percipiat :  aut  servum,  ex 
cujus  operis  locatis  multum  quaestus  faciat :  aut  ut  denique  alias  merces  praes- 
tinet,  quas  vili  emptas  pluris  vendat "  (p.  195). 

And  after  showing  that  $ne  who  lends  money  to  an  undertaking  is  not 
under  any  obligation  to  inquire  whether  it  is  usefully  employed  by  the  borrower, 
any  more  than  the  hirer  of  a  house  need  make  similar  inquiry,  he  continues  :  "  Hoc 
non  est  sortem  bis  vendere,  nee  pro  nihilo  aliquid  percipere.  An  pro  nihilo  compu- 
tandum,  quod  tu  dum  meis  nummis  uteris,  sive  ad  ea  quae  tuae  postulant  necessi- 
tates, sive  ad  tua  compendia,  ego  interim  his  careo  cum  meo  interdum  damno  et 
jactura  ?  Et  cum  mutuum  non  in  sola  sit  pecunia  numerata,  sed  etiani  in  aliis 
rebus  quae  pondere  et  mensura  continentur,  ut  in  frugibus  humidis  vel  aridis,  an, 
qui  indigenti  mutuum  vinum  aut  triticum  dederit,  quod  usurae  nomine  pro  usu 
eorum  consequetur,  pro  nihilo  id  capere  existimabitur  ?  Qui  fruges  meas  hi 
egestate  sua  consumpserit,  quas  care  emere  ad  victum  coactus  esset,  aut  qui  eas 
aliis  care  vendiderit,  praeter  ipsam  mensuram  quam  accepit,  si  aliquid  vice 
raercedis  propter  usum  admensus  fuerit,  an  id  injustum  habebitur  ?,  Atqui  poteram, 
si  eas  servassem,  carius  fortasse  in  foro  vendere,  et  plus  lucri  ex  illis  venditis 
efficere,  quam  quantum  possim  percipere  ex  usuris  quas  mihi  reddent"  (p.  196,  etc.) 
Particularly  biting  is  his  reply  to  the  argument  of  the  unfruitfulness  of  money  : 
' '  Facilis  responsio.  Nihil  non  sterile  est,  quod  tibi  sterile  esse  volueris.  Ut  contra 


CHAP,  it  SALMASIUS  39 

him  with  interest  in  addition,  and  to  make  him  hand  over 
the  fruit  of  the  money  to  another  who  takes  no  risk ;  that 
usury  would  lead  to  the  neglect  of  agriculture,  commerce, 
and  the  other  bonae  artes,  to  the  injury  of  the  common  weal, 
and  so  on.  In  replying  to  this  latter  argument  Salmasius  gets 
an  opportunity  of  commending  the  use  of  competition.  The 
more  usurers  there  are  the  better ;  their  emulation  will  press 
down  the  rate  of  interest  Then,  from  the  ninth  chapter 
onwards,  with  extraordinary  display  of  force  and  erudition, 
with  many  passages  full  of  striking  eloquence,  but,  it  must  be 
said,  with  endless  prolixity,  comes  the  disproof  of  the  argu- 
ment that  interest  is  "unnatural."  Quite  at  the  end  (De 
Usuris,  chap,  xx.;,  the  question  is  finally  put  whether  interest, 
thus  sanctioned  by  the  jus  iiaturale,  also  expresses  the  jus 
divinum,  and  this  naturally  is  answered  in  the  affirmative. 

nihil  non  fructaosum,  quod  cultura  exercere,  lit  fructum  ferat,  institueris.  Nee 
de  agrorum  fertilitate  regeram,  qui  non  essent  feraces  nisi  humana  industria  red- 
deret  tales.  .  .  .  Magis  minim  de  acre,  et  hunc  quaestuosum  imperio  factum. 
Qui  aepixfo  imposuerunt  vectigal  singulis  domibus  Constantiuopolitani  imperatores, 
aerem  sterilem  esse  pati  non  potuerunt.  Sed  haec  minus  cum  foenore  conveniunt. 
Nee  mare  hie  sollicitandum,  quod  piscatoribus,  urinatoribns,  ac  nautis  ad  qnaes- 
tum  patet,  ceteris  sterilitate  occlusum  est.  Quid  sterilius  aegroto  ?  Nee  ferre  se, 
nee  movere  interdum  potest.  Hunc  tamen  in  redditu  habet  medicus.  Una  res 
est  aegroto  sterilior,  nempe  mortuus.  .  .  .  Hie  tamen  sterilis  non  est  pollinctor- 
ibus,  neque  sardapilouibus,  neque  vespillonibus,  neque  fossariis.  Immo  nee 
praeticis  olim,  nee  nunc  sacerdotibus,  qui  eum  ad  sepulcrum  cantando  deducunt. 
Quae  corpus  alit  corpore,  etiamsi  liberos  non  pariat,  non  tamen  sibi  infecunda  est. 
Nee  artem  hie  cogites ;  natura  potius  victum  quaerit.  Meretricem  me  dicere 
nemo  non  sen  tit.  .  .  .  De  pecunia  quod  ajuut,  nihil  ex  se  producere  natura,  cur 
non  idem  de  ceteris  rebus,  et  frugibus  omne  genus,  quae  mutuo  dantur,  asserunt  ? 
Sed  triticum  dupliei  modo  frugiferum  est,  et  cum  in  terrain  jacitur,  et  cum  in 
foenus  locatur.  Utrobique  foenus  est.  Nam  et  terra  id  reddit  cum  foenore. 
Cur  natura  aedium,  quas  mercede  pacta  locavero,  magis  potest  videri  foecunda, 
quam  nummorum  quos  foenore  dedero  ?  Si  gratis  eas  commodavero,  aeque  ac  si 
hos  gratis  mutuo  dedero,  turn  steriles  tarn  hi  quam  illae  mihi  evadent.  Vis  scire 
igitur,  quae  pecunia  proprie  sterilis  sit  dicenda,  immo  et  dicta  sit  ?  Ilia  certe, 
quae  foenore  non  erit  occupata,  quaeque  nihil  mihi  pariet  usnraram,  quas  et  prop- 
terea  Graeci  rixov  nomine  appellarunt"  (p.  198).  The  third  argument  of  his 
opponents,  that  the  loan  should  not  bear  interest  because  the  things  lent  are  a 
property  of  the  debtor,  Salmasius  finds  "ridiculous"  :  "At  injustum  est,  ajunt, 
me  tibi  vendere  quod  tuum  est,  videlicet  usum  aeris  tuae.  Potens  sane  argumen- 
tum.  Atqui  non  fit  tuum,  nisi  hac  lege,  ut  pro  eo,  quod  accepisti  utendum, 
certam  mihi  praestes  mercedem,  usurae  nomine,  absque  qua  frustra  tuum  id  esse 
cuperes.  Non  igitur  tibi,  quod  tuum  est,  vendo,  sed,  quod  meum  est,  ea  con- 
ditione  ad  te  transfero,  ut  pro  usu  ejus,  quamdiu  te  uti  patiar,  milii,  quod  pactum 
inter  nos  est,  persolvas." 


40  THE  DEFENCE  OF  INTEREST  BOOK  i 

These  are  the  essential  features  of  Salmasius's  doctrine. 
Not  only  does  it  indicate  an  advance,  but  it  long  indicates  the 
high-water  mark  of  the  advance.  For  more  than  a  hundred 
years  any  development  there  was  consisted  in  nothing  more 
than  the  adoption  of  it  in  wider  circles,  the  repetition  of  it 
with  more  or  less  skilful  variations,  and  the  adapting  of  its 
arguments  to  the  fashion  of  the  time.  But  there  was  no 
essential  advance  on  Salmasius  till  the  time  of  Smith  and  Turgot. 

As  the  number  of  those  who  accepted  the  doctrine  repre- 
sented by  Salmasius  increased,  so  did  the  number  of  those 
who  adhered  to  the  canon  doctrine  diminish.  This  defection, 
as  may  be  easily  understood,  went  on  more  rapidly  in  the 
Reformation  countries  and  in  those  speaking  the  German 
language,  more  slowly  in  countries  purely  Catholic  and  in  those 
speaking  the  Romance  tongues. 

In  the  Netherlands,  as  I  have  already  said,  the  works  of 
Salmasius  were  almost  immediately  followed  by  a  whole  series  of 
writings  of  similar  tenor.  As  early  as  the  year  1640  we  meet 
with  the  works  of  Kloppenburg,  Boxhorn,  Maresius,  Graswinckel.1 
A  little  later,  about  1644,  the  Tafelhalterstreit2  gave  occa- 
sion to  a  fiery  literary  feud  between  the  two  parties,  and  in 
1658  this  practically  ended  in  a  victory  for  the  supporters 
of  interest.  Within  the  next  few  years,  among  the  ever- 
increasing  adherents  of  the  new  theory,  stands  out  prominently 
the  renowned  and  influential  lawyer  Gerhard  Noodt,  who  in  his 
three  books,  De  Foenore  et  Usuris,  discusses  the  whole  interest 
question  very  thoroughly,  and  with  great  knowledge  of  facts 
and  literature.3  After  that  there  are  fewer  and  fewer 
expressions  of  hostility  to  interest,  especially  from  professional 
men ;  still  they  do  occur  occasionally  up  till  the  second  half  of 
the  eighteenth  century.4 

In  Germany,  whose  political  economy  during  the  seven- 
teenth and  even  during  the  eighteenth  century  is  not  of  much 

1  Laspeyres,  p.  257.         2  Very  fully  described  by  Laspeyres,  p.  258,  etc. 

8  Noodt  is  very  much  quoted  as  an  authority  in  the  learned  literature  of 
the  eighteenth  century;  e.y.  by  Bohmer,  Protest.  Kirchenrecht,  vol.  v.  p.  19 passim. 
Barbeyrac,  the  editor  of  several  editions  of  Hugo  Grotius,  says  that,  on  the 
matter  of  interest,  there  is  an  "opus  absolutissimum  et  plenissimum  summi  juris- 
consulti  et  non  minus  judicio  quam  enulitione  insinis,  Clariss.  Noodtii"  (De 
Jure  Belli  ac  Pacis  :  edition  of  Amsterdam,  1720,  p.  384). 

4  Laspeyres,  p.  269. 


CHAP,  ii  FOLLOWERS  OF  SALMASIUS  41 

account,  the  Salmasian  doctrine  made  its  way  slowly  and  un- 
sensationally,  gaining  nothing  in  development.  On  German  soil 
the  power  of  practical  life  was  very  clearly  shown.  It  was  to  its 
pressure  that  the  revolution  in  opinion  was  due,  theory  mean- 
while halting  clumsily  behind  the  reform  in  public  opinion 
and  legislation.  Half  a  century  before  the  first  German 
lawyer,  in  the  person  of  Besold,  had  given  his  approval  to  it, 
the  taking  of  interest,  or  at  least  the  claim  to  a  fixed  interesse 
arranged  in  advance  (which  practically  came  to  the  same 
thing),  was  allowed  in  much  of  the  German  local  law;1  and 
when  in  1654  the  German  imperial  legislation  followed  this 
example,2  few  theorists  sided  with  Besold  and  Salmasius.  So 
late  as  1629  it  was  possible  for  one  Adam  Contzen  to 
demand  that  lenders  at  interest  should  be  punished  by  crim- 
inal law  like  thieves,  and  that  all  Jews  should  be  hunted  out 
of  the  country  like  venenatae  bestiae-.3  Not  till  the  end  of  the 
seventeenth  century  does  the  conviction  of  the  legitimacy  of 
interest  become  firmly  established  in  theory.  The  secession 
of  such  prominent  men  as  Pufendorf4  and  Leibnitz5  to  the 
new  doctrine  hastened  its  victory,  and  in  the  course  of  the 
eighteenth  century  it  is  at  last  gradually  taken  out  of  the 
region  of  controversy. 

In  this  position  we  find  it  in  the  two  great  cameralists 
who  flourish  at  the  end  of  our  period,  Justi  and  Sonnenfels. 
Justi's  Staatswirthschaft6  does  not  contain  a  single  line  relat- 
ing to  the  great  question  on  which  in  former  times  so  many 
bulky  volumes  had  been  written,  certainly  none  that  could  be 
taken  as  a  theory  of  interest.  He  tacitly  assumes  it  as  a  fact 
requiring  no  explanation  that  interest  is  paid  for  a  loan ;  and 
if  in  one  or  two  short  notes  (vol.  i.  §  268)  he  speaks  against 
usury,  he  understands  by  that — but  still  tacitly — only  an 
excessive  interest. 

1  Neumann,   Geschichte  des   IVuchcrs  in  Deutschland,  p.  546,  mentions  per- 
missions by  local  law  of  contract  interest  about  the  years  1520-30.     Endemann, 
it  is  true  (Studien,  ii.  pp.  316  and  365,  etc.)  would  interpret  these  permissions 
as  applying  only  to   stipulated  interesse,   which,   theoretically  at  least,   was 
different  from  interest  proper  (usura).     In  any  case  the  taking  of  interest  had 
thus  practically  received  toleration  from  the  state. 

2  In  the  last  Reichsabschicd.     On  the  disputed  interpretation  of  the  passages 
referred  to,  see  Neumann,  p.  559,  etc. 

3  Roscher,  Geschichte,  p.  205.  *  Ibid.  p.  312,  etc. 

6  Ibid.  p.  338,  etc.  6  Second  edition,  1758. 


42  THE  DEFENCE  OF  INTEREST  BOOK  i 

Sonnenfels  is  not  so  silent  on  the  subject  as  Justi.  But 
even  he,  in  the  earlier  editions  of  his  Handlungswissensclutft1 
never  once  touches  on  the  controversy  as  to  the  theoretic  legit- 
imacy of  interest.  In  the  fifth  edition  (published  1787)  he 
refers  to  it,  indeed,  but  in  the  kind  of  tone  which  one  usually 
adopts  towards  a  foregone  conclusion.  In  a  simple  note  on 
p.  496,  he  dismisses  with  a  few  decided  words  the  prohibition 
of  the  canonists,  ridicules  their  absurd  way  of  writing,  and 
finds  it  preposterous  to  forbid  6  per  cent  interest  for  money 
when  100  per  cent  can  be  got  when  money  is  changed  into 
commodities. 

Sonnenfels's  contempt  for  the  canon  doctrine  carries  all  the 
more  weight  that  he  has  nothing  good  to  say  of  interest  in 
other  respects.  Influenced  by  Forbonnais  he  finds  its  origin 
in  an  interception  of  the  circulation  of  money  by  the  capitalists, 
out  of  whose  hands  it  can  only  be  attracted  by  a  tribute  in  the 
shape  of  interest.2  He  ascribes  to  it  many  injurious  effects ; 
such  as,  that  it  makes  commodities  dear,  reduces  the  profits  of 
industry,  and  allows  the  owner  of  money  to  share  in  these 
profits.3  Indeed  in  one  place  he  speaks  of  the  capitalists  as 
the  class  of  those  "who  do  no  work,  and  are  nourished  on  the 
sweat  of  the  working  classes." 4 

But  alongside  of  expressions  like  these  we  find  the  ac- 
cepted Salmasian  doctrine.  In  one  place,  quite  in  the  spirit 
of  Salmasius,  Sonnenfels  adduces  as  arguments  for  the  capi- 
talists' claim,  the  want  of  their  money,  their  risk,  and  the  uses 
they  might  have  got  by  the  purchase  of  things  that  produced 
fruit.5  In  another  place  he  recognises  that  a  lowering  of  the 
legal  rate  is  not  the  best  means  to  repress  the  evils  of  high 
interest.6  At  another  time  he  finds  that,  since  the  above 
mentioned  conditions  that  determine  interest  are  variable,  a 
fixed  legal  rate  is  generally  unsuitable  as  being  either  super- 
fluous or  hurtful.7 

The  deep  silence  which  Justi  maintains,  if  considered 
along  with  the  inconsistent  eloquence  expended  by  Sonnenfels, 
seems  to  me  to  be  a  very  characteristic  proof  of  two  things ; 
(1)  that,  when  these  men  wrote,  the  Salmasian  doctrine  had 

1  Second  edition,  Vienna,  1771.  2  Ibid.  pp.  419,  425,  etc. 

3  Ibid.  p.  427.  4  Ibid.  p.  430.          5  Ibid.  p.  426,  etc. 

6  Ibid.  p.  432,  etc.  7  Fifth  edition,  p.   497. 


CHAP,  ii  JUSTl,  SONNENFELS  43 

already  secured  so  firm  a  footing  in  Germany,  that  even  writers 
who  felt  most  hostile  towards  interest  could  not  think  of 
going  back  to  the  strict  canonist  standpoint,  but  (2)  that  up  till 
now  the  acceptance  of  the  Salmasian  doctrine  had  not  been 
accompanied  by  any  kind  of  further  development  in  it. 

England  appears  to  have  been  the  country  where  the  throw- 
ing off  of  the  canon  doctrine  was  attended  with  the  least  amount 
of  literary  excitement.  Through  the  rapid  rise  of  its  com- 
merce and  industry,  interest  transactions  had  early  entered 
into  its  economy,  and  its  legislation  had  early  given  way  to  the 
wants  of  industrial  life.  Henry  VIII  had  by  1545  removed 
the  prohibition  of  interest,  and  replaced  it  by  a  simple  legal 
rate.  For  a  little,  indeed,  the  prohibition  was  reimposed  under 
Edward  VI,  but  in  1571  it  was  once  more  taken  off  by  Queen 
Elizabeth,  and  this  time  for  ever.1  Thus  the  theoretical 
question  whether  loan  interest  was  justifiable  or  not  was 
practically  answered  before  there  was  any  theoretic  economic 
doctrine,  and  when  an  economic  literature  at  last  emerged, 
the  prohibition,  now  removed,  had  but  little  interest  for  it. 
All  the  more  strongly  was  its  attention  drawn  to  a  new 
controverted  question  raised  by  the  change  in  legislation — 
the  question  whether  there  should  be  a  legal  rate,  and  what 
should  be  the  height  of  it. 

These  circumstances  have  left  their  stamp  on  the  interest 
literature  of  England  during  the  seventeenth  and  eighteenth 
centuries.  We  find  numerous  and.  eager  discussions  as  to 
the  height  of  interest,  as  to  its  advantages  and  disadvantages, 
and  as  to  the  advisability,  or  otherwise,  of  limiting  it  by  law 
But  they  now  touch  only  rarely,  and  then,  as  a  rule,  quite  casu- 
ally, on  the  question  of  its  economic  nature,  of  its  origin,  and 
of  its  legitimacy.  One  or  two  short  proofs  of  this  stage  in  the 
development  of  the  problem  will  suffice. 

Of  Bacon,  who  flourished  very  shortly  after  the  age  of 
the  prohibition,  and  had  avowed  himself,  on  very  shallow  prac- 
tical grounds,  in  favour  of  interest,  we  have  already  spoken.2 
Some  twenty  years  later,  Sir  Thomas  Culpepper,  himself  a 
violent  opponent  of  interest,  does  not  venture  to  put  forward 
the  canon  arguments  under  his  own  name,  but  characteristic- 

1  See  Schanz,  Englische  Handdspolitik,  Leipzig,  1881,  vol.  i.  p.  552,  etc. 

2  See  above,  p.  34. 


44  THE  DEFENCE  OF  INTEREST  BOOK  i 

ally  passes  over  the  subject  with  the  remark  that  he  leaves 
it  to  the  theologians  to  prove  the  unlawfulness  of  interest, 
while  he  will  limit  himself  to  showing  how  much  evil 
is  done  by  it.1  In  doing  so,  however,  he  directs  his  attacks 
not  so  much  against  interest  in  general  as  against  high 
interest.2 

In  the  same  way  another  writer,  very  unfavourably  dis- 
posed towards  interest,  Josiah  Child,  will  no  longer  meddle 
with  the  question  of  its  lawfulness,  but  simply  refers8  the 
reader  who  wishes  to  go  deeper  into  the  matter  to  an  older  and 
apparently  anonymous  work,  which  appeared  in  1634  under 
the  title  of  "  The  English  Usurer."  Further,  he  frequently  calls 
interest  the  "  price  of  money," — an  expression  which  certainly 
betrays  no  deep  insight  into  its  nature ;  expresses  his  opinion 
in  passing  that  through  it  the  creditor  enriches  himself  at  the 
expense  of  the  debtor ;  but  all  the  same  contents  himself  with 
pleading  for  the  limitation  of  the  legal  rate,  not  for  entire 
abolition.4 

His  opponent,  again,  North,  who  takes  the  side  of  interest, 
conceives  of  it  quite  in  the  manner  of  Salmasius,  as  a  "  rent 
for  stock,"  similar  to  land-rent ;  but  cannot  say  anything  more, 
in  explanation  of  either  of  them,  than  that  owners  hire  out  their 
superfluous  land  and  capital  to  such  as  are  in  want  of  them.5 

Only  one  writer  of  the  seventeenth  century  forms  any 
exception  to  this  superficial  treatment  of  the  problem,  the 
philosopher  John  Locke. 

Locke  has  left  a  very  remarkable  tract  on  the  origin  of 
loan  interest,  entitled  "  Some  Considerations  of  the  Conse- 
quences of  lowering  the  Interest  and  raising  the  Value  of 

1  Tract  against  the  high  rate  of  usury,  1621. 

2  E.g.  in  "A  Small  Treatise  against  Usury,"  annexed  to  Child's  Discourses, 
1690,   p.  229:  "It  is  agreed  by  all  the  Divines  that  ever  were,  without  ex- 
ception of  any ;   yea,  and  by   the  Usurers   themselves,   that   biting  Usury   is 
unlawful :  Now  since  it  hath  been  proved  that  ten  in  the  hundred  doth  bite  the 
Landed  men,  doth  bite  the  Poor,  doth  bite  Trade,  doth  bite  the  King  in  his 
Customs,  doth  bite  the  Fruits  of  the  Land,  and  most  of  all  the  Land  itself :  doth 
bite  all  works  of  Piety,  of  Vertue,  and  Glory  to  the  State  ;  no  man  can  deny  but 
ten  in  the  hundred  is  absolutely  unlawful,  howsoever  happily  a  lesser  rate  may 
be  otherwise." 

3  In  his  introduction  to  Brief  Observations  concerning  Trade,  1668. 

4  "  New  Discourse  of  Trade,"  1690.     See  Roscher,  p.  59,  etc. 

5  Roscher,  p.  89. 


CHAP,  ii  CULPEPPER,  CHILD,  LOCKE  45 

Money,"  1691.  He  begins  with  a  few  propositions  that  remind 
one  very  much  of  the  canonists'  standpoint.  "  Money,"1  he  says, 
"is  a  barren  thing,  and  produces  nothing;  but  by  compact 
transfers  that  profit,  that  was  the  reward  of  one  man's  labour, 
into  another  man's  pocket."  Nevertheless  Locke  finds  that 
loan  interest  is  justified.  To  prove  this,  and  to  bridge  over 
his  own  paradox,  he  uses  the  complete  analogy  that,  in  his 
opinion,  exists  between  loan  interest  and  land-rent.  The  proxi- 
mate cause  of  both  is  unequal  distribution.  One  has  more 
money  than  he  uses,  and  another  has  less,  and  so  the  former 
finds  a  tenant  for  his  money 2  for  the  very  same  reason  as  the 
landlord  finds  a  tenant  for  his  land,  namely,  that  the  one  has 
too  much  land,  while  the  other  has  too  little. 

But  why  does  the  borrower  consent  to  pay  interest  for 
the  money  lent  ?  Again,  on  the  same  ground  as  the  tenant 
consents  to  pay  rent  for  the  use  of  land.  For  money — of 
course  only  through  the  industry  of  the  borrower,  as  Locke 
expressly  adds — is  able  when  employed  in  trade  to  "produce" 
more  than  6  per  cent  to  the  borrower,  just  in  the  same  way 
as  land,  "  through  the  labour  of  the  tenant,"  is  able  to  produce 
more  fruit  than  the  amount  of  its  rent.  If,  then,  the  interest 
which  the  capitalist  draws  from  the  loan  is  to  be  looked  on 
as  the  fruit  of  another  man's  labour,  this  is  only  true  of  it 
as  it  is  true  of  rent.  Indeed,  it  is  not  so  true.  For  the 
payment  of  land-rent  usually  leaves  the  tenant  a  much  smaller 
proportion  of  the  fruit  of  his  industry  than  the  borrower  of 
money  can  save,  after  paying  the  interest,  out  of  the  profit 
made  with  the  money.  And  so  Locke  comes  to  the  con- 
clusion :  "  Borrowing  money  upon  use  is  not  only,  by  the 
necessity  of  affairs  and  the  constitution  of  human  society, 
unavoidable  to  some  men ;  but  to  receive  profit  from  the  loan 
of  money  is  as  equitable  and  lawful  as  receiving  rent  for  land, 
and  more  tolerable  to  the  borrower,  notwithstanding  the  opinion 
of  some  over-scrupulous  men"  (p.  37). 

It  will  scarcely  be  maintained    that  this  theory  is  par- 
ticularly happy.     There  is  too  marked  a  contrast  between  its 

1  I  quote  from  the  collected  edition  of  Locke's  works,  London,  1777,  vol.  ii. 
p.  24.     "Some  Considerations,"  p.  36. 

2  In  other  places  (e.g.  p.  4)  Locke  calls  interest  a  price  for  the  "hire  of 
money." 


46  THE  DEFENCE  OF  INTEREST  BOOK  i 

starting-point  and  its  conclusion.  If  it  be  true  that  loan 
interest  transfers  the  hard-earned  wage  of  the  man  who  works 
into  the  pocket  of  another  man  who  does  nothing,  and  whose 
money  besides  is  a  "  barren  thing,"  it  is  absolutely  inconsist- 
ent to  say  that  loan  interest  is  nevertheless  "  equitable  and 
lawful."  That  there1  is  undoubtedly  an  analogy  between 
interest  and  the  profit  from  land  rent,  was  very  likely  to 
lead  logically  to  a  conclusion  involving  land  rent  in  the  same 
condemnation  as  interest.  To  this  Locke's  theory  would  have 
presented  sufficient  support,  since  he  expressly  declares  rent 
also  to  be  the  fruit  of  another  man's  industry.  But  with 
Locke  the  legitimacy  of  rent  appears  to  have  been  beyond 
question. 

But,  however  unsatisfactory  Locke's  theory  of  interest  may 
be,  there  is  one  circumstance  at  any  rate  that  confers  on  it  an 
important  interest  for  us ;  in  the  background  of  it  stands  the 
proposition  that  human  labour  produces  all  wealth.  In  the 
present  case  Locke  has  not  expressed  the  proposition  so  much 
as  made  use  of  it,  and  has  not,  indeed,  made  a  very  happy 
use  of  it.  But  in  another  place  he  has  given  it  clear  utterance 
where  he  says :  "  For  it  is  labour  indeed  that  put  the  differ- 
ence of  value  on  everything." x  We  shall  soon  see  how  great  a 
place  this  proposition  is  to  have  in  the  later  development  of 
the  interest  problem. 

A  certain  affinity  to  Locke's  conception  of  loan  interest  is 
shown  somewhat  later  by  Sir  James  Steuart.  "The  interest," 
he  writes,  "  they  pay  for  the  money  borrowed  is  inconsiderable 
when  compared  with  the  value  created  (as  it  were)  by  the 
proper  employment  of  their  time  and  talents."  "  If  it  be  said 
that  this  is  a  vague  assertion,  supported  by  no  proof,  I  answer, 
that  the  value  of  a  man's  work  may  be  estimated  by  the  propor- 
tion between  the  manufacture  when  brought  to  market  and  the 
first  matter"  2 

The  words  I  have  emphasised  indicate  that  Steuart,  like 
Locke,  looks  upon  the  whole  increment  of  value  got  by  pro- 
duction as  the  product  of  the  borrower's  labour,  and  on  loan 
interest,  therefore,  as  a  fruit  of  that  labour. 

1  Of  Civil  Government,  vol.  ii.  chap.  v.  §  40.     See  also  Roscher,  p.  95,  etc. 
-  Inquiry  into  the  Principles  of  Political  Economy,  1767,  vol.  ii.  book  iv.  part 
i.  chap.  viii.  p.  137. 


CHAP,  ii  LOCKE,  STEUART,  HUME  47 

If,  however,  both  Locke  and  Steuart  were  quite  uncertain 
as  to  the  nature  of  that  which  we  now  call  the  borrower's 
natural  profit,  they  were  far  from  making  any  mistake  about 
the  fact  that  loan  interest  has  its  origin  and  its  foundation 
in  this  profit.  Thus  Steuart  in  one  place  writes  :  "  In  propor- 
tion, therefore,  to  the  advantages  to  be  reaped  from  borrowed 
money,  the  borrowers  offer  more  or  less  for  the  use  of  it." l 

Generally  speaking,  in  England  the  literature  on  the  sub- 
ject took  great  pains  to  discuss  the  connection  between  loan 
interest  and  profit.  In  doing  so  it  certainly  did  not  surpass 
the  Salmasian  doctrine  in  clearness  as  to  principles,  but  it 
enriched  it  by  extending  its  knowledge  of  details.  The  favourite 
inquiry  was,  whether  a  high  loan  interest  is  the  cause  or 
the  effect  of  a  high  profit.  Hume  passes  judgment  on  the 
controversy  by  saying  that  they  are  alternately  cause  and 
effect  "  It  is  needless,"  he  says,  "  to  inquire  which  of  these 
circumstances,  to  wit,  low  interest  or  low  profits,  is  the  cause 
and  which  the  effect.  They  both  arise  from  an  extensive 
commerce,  and  mutually  forward  each  other.  No  man  will 
accept  of  low  profits  where  he  can  have  high  interest ;  and 
no  man  will  accept  of  low  interest  where  he  can  have  high 
profits."2 

Of  more  value  than  this  somewhat  superficial  opinion  is 
another  discovery  associated  with  the  name  of  Hume.  It  was 
he  who  first  clearly  distinguished  the  conception  of  money 
from  that  of  capital,  and  showed  that  the  height  of  the 
interest  rate  in  a  country  does  not  depend  on  the  amount  of 
currency  that  the  country  possesses,  but  on  the  amount  of  its 
riches  or  stocks.3  But  it  was  not  till  a  later  period  that  this 
important  discovery  was  applied  to  the  investigation  of  the 
source  of  interest. 

How  strange  in  the  meantime  the  once  widespread  doc- 
trine of  the  canonists  had  become  to  the  busy  England  of 
the  eighteenth  century  may  be  seen  by  the  manner  in  which 
Bentham  could  treat  the  subject,  towards  the  end  of  that 
century,  in  his  Defence  of  Usury,  1787.  He  no  longer  thinks 
of  seriously  attempting  to  justify  the  taking  of  interest.  The 

1  Inquiry  into  the  Principles  of  Political  Economy,  1767,  vol.  ii.  book  iv.  part 
L  chap.  iv.  p.  117.  2  "Of  Interest,"  Essays,  part.  ii.  chap.  iv. 

3  Ibid,  passim. 


48  THE  DEFENCE  OF  INTEREST  BOOK  i 

arguments  of  the  ancient  writers  and  of  the  canonists  are  only 
mentioned  to  afford  welcome  matter  for  witty  remarks,  and 
Aristotle,  as  the  discoverer  of  the  argument  of  the  sterility  of 
money,  is  bantered  in  the  words :  "  As  fate  would  have  it,  that 
great  philosopher,  with  all  his  industry  and  all  his  penetration, 
notwithstanding  the  great  number  of  pieces  of  money  that  had 
passed  through  his  hands  (more  perhaps  than  ever  passed 
through  the  hands  of  philosopher  before  or  since),  and  notwith- 
standing the  enormous  pains  he  had  bestowed  on  the  subject 
of  generation,  had  never  been  able  to  discover  in  any  piece  of 
money  any  orgats  for  generating  any  other  such  piece." 

Italy  stood  immediately  under  the  eye  of  the  Eoman 
Church.  But  Italy  was  the  country  in  Europe  that  earliest 
attained  a  great  position  in  trade  and  commerce ;  and  on  that 
account  it  was  bound  to  be  the  first  to  find  the  pressure  of  the 
canon  prohibition  unbearable.  The  general  attitude  towards 
it  may  be  explained  by  two  considerations ;  that  nowhere  in 
Europe  did  the  prohibition  of  interest  remain  in  fact  more 
inoperative,  and  that  nowhere  in  Europe  was  it  so  late  before 
the  theorists  ventured  to  oppose  the  Church's  statute. 

Everything  that  could  be  done  to  evade  the  formally  valid 
prohibition  was  done ;  and  it  seems  that  these  attempts  were 
sufficiently  successful  for  all  the  requirements  of  practical  life. 
The  most  convenient  forms  of  evasion  were  offered  by  the  traffic 
in  bills,  which  had  its  home  in  Italy,  and  by  the  stipulation  of 
interesse  for  "  indemnification."  The  temporal  legislation  offered 
ready  and  willing  assistance  to  such  evasion  from  a  very  early 
period  by  allowing  the  interest  to  be  arranged  beforehand,  at  a 
fixed  rate  of  percentage  on  the  capital  lent.  It  only  fixed 
a  maximum  which  could  not  be  exceeded.1 

On  the  other  hand,  no  Italian  writer  appears  to  have 
made  any  open  theoretic  attack  on  the  canon  doctrine  before 
the  eighteenth  century.  Galiani  in  1750  mentions  Salmasius 
as  the  first  who  had  given  a  complete  statement  of  the  doctrine 
of  interest  from  the  new  point  of  view;  and,  in  Italian  litera- 
ture previous  to  that  time,  the  only  mention  he  can  find  of 
the  subject  is  the  quarrel  which  had  flared  up  a  little  before 
between  the  Marchese  Maffei  and  the  preaching  monk  Fra 

1  See  the  historical  works  of  Vasco,  L'  Usura  Libera  (Scrittori  Classici  Italiani 
Parte  Moderna,  vol.  xxxiv.  p.  182,  etc. ;  particularly  pp.  195,  198,  etc.,  210,  etc.) 


CHAP,  ii  BENTHAM—GALIANI  49 

Danielle  Concina.1  Other  prominant  writers  of  the  same  period 
usually  quote  among  their  predecessors  Salmasius  as  most  im- 
portant, and  after  him  some  other  foreigners,  as  Locke,  Hume, 
and  Forbonnais ;  but  the  first  name  that  occurs  among  native 
writers  is  the  Marchese  Maffei.2  Here  again,  in  Italy  also, 
we  find  Salmasius  accepted  as  the  pioneer  of  the  new  views. 

The  tardy  acceptance  which  his  doctrine  met  in  that  coun- 
try does  not  appear  to  have  been  attended  by  any  special  im- 
provement on  it.  There  is  only  one  writer  who  can  be  excepted 
from  this  criticism,  Galiani.  But  he  deals  with  the  question 
of  the  nature  and  legitimacy  of  loan  interest  in  a  way  that 
is  altogether  peculiar. 

If  interest,  he  says,3  really  were  what  it  is  usually  taken 
to  be,  a  profit  or  an  advantage  which  the  lender  makes  with 
his  money,  then  indeed  it  would  be  objectionable,  for  "  whatever 
profit,  be  it  grea*t  or  small,  that  is  yielded  by  naturally  barren 
money,  is  objectionable ;  nor  can  any  one  call  such  a  profit  the 
fruit  of  exertion,  when  the  one  who  puts  forth  the  exertion  is 
the  one  who  takes  the  loan,  not  the  one  who  gives  it "  (p.  244). 

But  interest  is  not  a  true  profit  at  all ;  it  is  only  a  supple- 
menting of  that  which  is  needed  to  equalise  service  and 
counter-service.  Proper]  y  speaking,  service  and  counter-service 
should  be  of  equal  value.  Since  value  is  the  relation  in 
which  things  stand  to  our  needs,  we  should  be  quite  mistaken 
were  we  to  seek  for  such  an  equivalence  in  an  equality  of 
weight, lor  in  number  of  pieces,  or  in  ;  :.iernal  form.  What  is 
required  is  simply  an  equality  of  use.  Now  in  this  respect 
present  and  future  sums  of  money  of  equal  amount  are  not 
of  equal  value,  just  as  in  bill  transactions  equally  large  sums 
of  money  are  not  of  equal  value  at  different  places.  And 
just  as  the  profit  of  exchange  (cambio),  notwithstanding  that 
it  seems  to  be  an  additional  sum  (soprappiii),  is  in  truth  an 
equalisation,  which,  when  added  sometimes  to  the  money  on 
the  spot,  sometimes  to  the  foreign  money,  establishes  the 
equality  of  real  value  between  the  two,  so  is  loan  interest 
nothing  else  than  the  equalisation  of  the  difference  there  is 

1  Galiani,  Delia  Moneta   (Scritt.   Class.    Ital.   Parte   Moderna,  vol.   iv.    p. 
240,  etc.) 

2  Impiego  del  Danaro.     Unfortunately  I  have  not  seen  the  book. 

3  Delia  Moneta,  book  v.  chap.  i. 

E 


50  THE  DEFENCE  OF  INTEREST  BOOK  i 

between  the  value  of  present  and  future  sums  of  money  (p. 
243,  etc.) 

In  this  interesting  idea  Galiani  has  hit  on  a  new  method 
of  justifying  loan  interest,  and  one  which  relieves  him  from 
a  certain  doubtful  line  of  argument  that  his  predecessors  were 
obliged  to  take.  Salmasius  and  his  followers,  to  avoid  the 
reproach  of  destroying  the  equality  between  service  and  counter- 
service,  were  obliged  to  attempt  to  prove  that  in  perishable  as 
well  as  in  durable  things,  and  even  in  articles  actually  con- 
sumed at  the  beginning  of  the  loan  period,  there  is  an  enduring 
use  which  •  may  be  separately  transferred,  and  for  which  a 
separate  remuneration,  namely,  interest,  is  rightly  claimed. 
This  line  of  reasoning,  always  somewhat  fatal,  was  rendered 
superfluous  by  the  aspect  which  Galiani  now  gave  to  the 
argument. 

But  unfortunately  the  inference  which  Galiani  draws  from 
this  idea  is  very  unsatisfactory.  The  reason  that  present  sums 
of  money  are,  as  a  rule,  more  valuable  than  future  sums  he 
finds  exclusively  in  the  different  degree  of  their  security.  A 
claim  to  future  payment  of  a  sum  of  money  is  exposed  to 
many  dangers,  and  on  that  account  is  less  valued  than  an 
equally  large  present  sum.  In  so  far  as  interest  is  paid  to 
balance  these  dangers,  it  appears  in  the  light  of  an  insurance 
premium.  Galiani  gives  this  conception  very  strong  expression 
by  speaking  in  one  place  of  the  "  so-called  fruit  of  money  "  as 
a  price  of  heart-beats  (prezzo  del  batticuore),  p.  247  ;  and  at 
another  time  he  uses  the  very  words  that  that  thing  which 
is  called  the  fruit  of  money  might  be  more  properly  called  the 
price  of  insurance  (p.  252).  This  was  of  course  thoroughly 
to  misunderstand  the  nature  of  loan  interest. 

The  way  in  which  la'er  Italian  authors  of  the  eighteenth 
century  treated  the  interest  problem  is  less  worthy  of  notice. 
Even  the  more  prominent  men  among  them,  such  as  Genovesi1 
and  Beccaria,2  as  also  those  who  wrote  monographs  on  the 
subject,  like  Vasco,3  follow  for  the  most  part  in  the  tracks  of 
the  Salmasian  doctrine,  now  become  traditional. 

1  Lczioni  di  Economia  Civile,  1769  (Scritt.  Class.  Ital.  Parte  Moderna,  vol. 
ix.  part  ii.  chap.  xiii. } 

-  Eleincnti  di  Economia  Pubblica,  written  1769-71  ;  first  printed,  1804,  in  the 
collection  of  the  Scrittori,  vols.  xi.  and  xii.,  particularly  part  iv.  chaps,  vi.  and  vii. 

3  L'Usura  Libera,  vol.  xxxiv.  of  above  collection. 


CHAP,  a  GALIANI— BECCARIA  51 

The  most  worthy  of  mention  among  those  is  Beccaria. 
He  draws  a  sharp  distinction  between  interesse  and  usura. 
The  former  is  the  immediate  use  of  a  thing,  the  latter  is  the 
use  of  a  use  (Futilitd  dell'  utilita).  An  immediate  use  (interesse) 
is  rendered  by  all  goods.  The  special  interesse  of  money  con- 
sists of  the  use  which  the  goods  represented  by  it  may  render, 
for  money  is  the  common  measure  and  representative  of  the 
value  of  all  other  goods.  Since,  in  particular,  every  sum  of 
money  represents,  or  may  represent,  a  definite  piece  of  land,  it 
follows  that  the  interesse  of  the  money  is  represented  by  the 
annual  return  of  that  land.  Consequently  it  varies  with  the 
amount  of  this  return,  and  the  average  rate  of  money-interesse 
is  equalised  with  the  average  return  of  land  (p.  116). 

In  this  analysis  the  word  interesse  evidently  means  the 
same  thing  as  we  should  call  natural  profit,  and  in  it  accord- 
ingly we  may  find  an  attempt — although  a  primitive  one — to 
explain  the  existence  and  amount  of  natural  interest  by  the 
possibility  of  a  purchase  of  land.  As  we  shall  see  later, 
however,  the  same  thought  had  already,  some  years  before, 
received  much  fuller  treatment  from  another  writer. 

In  one  place  Beccaria  also  touches  on  the  influence  of 
time,  first  brought  forward  by  Galiani,  and  speaks  of  the 
analogy  between  exchange  interest,  which  is  an  interesse  of 
place,  and  loan  interest,  which  is  an  interesse  of  time  (p.  122), 
but  he  passes  over  it  much  more  cursorily. 

Catholic  France  was  all  this  time  far  behind,  both  in  theory 
and  practice.  Its  state  legislation  against  interest  enjoyed  for 
centuries  the  reputation  of  being  the  severest  in  Europe.  At  a 
time  when  in  other  countries  it  had  been  agreed  either  to  allow 
the  taking  of  interest  quite  openly,  or  to  allow  it  under  the 
very  transparent  disguise  of  previously  arranged  interesse,  Louis 
XIV  thought  fit  to  renew  the  existing  prohibition,  and  to 
extend  it  in  such  a  way  that  even  interest  for  commercial 
debts  was  forbidden,1  Lyons  being  the  only  market  exempted. 
A  century  later,  when  in  other  countries  the  long  obsolete 
prohibitions  of  interest  were  scoffed  at  in  the  tone  of  a  Son- 
uenfels  or  a  Bentham,  they  remained  in  force  and  in  baneful 
activity  among  the  tribunals  of  France.  It  was  only  in  the 

1  Yasco,  p.  209. 


52  THE  DEFENCE  OF  INTEREST  BOOK  i 

year  1789,  when  so  many  institutions  that  still  breathed  the 
spirit  of  the  middle  ages  were  cleared  away,  that  this  institution 
also  was  got  rid  of.  By  a  law  of  12th  October  1789  the  pro- 
hibition of  interest  was  formally  rescinded,  and  its  place  taken 
by  a  maximum  rate  of  5  per  cent. 

French  theory,  like  French  legislation,  held  most  religiously 
by  the  strictest  standpoint  of  the  canon.  How  little  success 
Molinaeus  had  in  the  middle  of  the  sixteenth  century  we  have 
already  seen.  At  the  end  of  that  century  a  writer  so  enlight- 
ened in  other  respects  as  Johannes  Bodinus  finds  the  prohibi- 
tion fully  justified ;  praises  the  wisdom  of  those  legislators  who 
publish  it ;  and  considers  it  safest  to  destroy  it  root  and  branch 
(usurarum  non  modo  radices  sed  etiam  fibras  omnes  amputare).1 
In  the  seventeenth  century,  it  is  true,  the  French  Salmasius 
wrote  brilliantly  on  the  side  of  interest,  but  that  was  outside 
of  France.  In  the  eighteenth  century  the  number  of  writers 
who  take  this  side  increases.  Law  already  contends  for  the 
entire  freeing  of  interest  transactions,  even  from  the  fixed  rate.2 
Melon  pronounces  interest  a  social  necessity  that  cannot  be 
refused,  and  leaves  it  to  the  theologians  to  reconcile  their 
moral  scruples  with  this  necessity.3  Montesquieu  declares 
that  lending  a  man  money  without  interest  is  indeed  a  very 
good  action,  but  one  that  can  only  be  a  matter  of  religious 
consideration,  and  not  of  civil  law.4  But  notwithstanding, 
there  are  always  writers  who  oppose  such  ideas,  and  contend 
for  the  old  strict  doctrine. 

Among  these  late  champions  of  the  canon  two  are  par- 
ticularly prominent :  the  highly  esteemed  jurist  Pothier  and  the 
physiocrat  Mirabeau. 

Pothier  succeeded  in  collecting  the  most  tenable  arguments 
from  the  chaotic  repertoire  of  the  canon,  and  working  them 
up  with  great  skill  and  acuteness  into  a  doctrine  in  which 
they  really  became  very  effective.  I  have  added  below  the 
characteristic  passage  which  has  already  attracted  the  attention 
of  several  writers  on  our  subject.5 

1  DC  Ecpublica,  second  edition,  1591,  v.  ii.  p.  799,  etc. 

2  E.g.  //*••  Mlmoiresur  Us  Banques  ;  Economistes  Financiers  du  xviii.  Sitcle, 
Edition  Dairc,  Paris,  1851,  p.  571. 

3  Essai  Politique  sur  le  Comitiercc,  ebenda  p.  742. 

4  Esprit  des  Lois,  xxii. 

5  The  passage  has  been  quoted  by  Rizy  ;  by  Turgot,  M&noire  sur  les  Frits 


CHAP.TI  POTHIER—MIRABEAU  53 

He  was  seconded — with  more  zeal  than  success — by 
the  author  of  the  Philosophic  Rurale,  Mirabeau.1  Mirabeau's 
lucubrations  on  interest  are  among  the  most  confused  that  have 
ever  been  written  on  the  subject  A  fanatical  opponent  of 
loan  interest,  he  is  inexhaustible  in  his  arguments  against  it. 
He  argues,  among  other  things,  that  loaned  money  has  no 
legitimate  claim  on  payment.  For,  first,  money  has  no 
natural  use,  but  only  represents.  "  But  to  obtain  a  profit 
from  this  representative  character  is  to  seek  in  a  glass  for  the 
figure  it  represents."  It  is  no  argument  then  for  the  owners 
of  money  to  say  that  they  must  live  from  the  produce  of 
their  money,  for  to  this  it  may  be  answered  that  they  could 
change  the  money  into  other  goods,  and  live  from  the  produce 
obtained  by  hiring  out  those  goods !  Lastly,  there  is  not  the 
same  wear  and  tear  in  the  case  of  money  as  there  is  in  the 
case  of  houses,  furniture,  and  such  like,  and  for  that  reason 

d1 Argent,  §  26 ;  and  also  by  Knies,  Kredit,  part  i.  p.  347.  It  runs  thus  :  "  It  is 
a  fair  claim  that  the  values  given  in  the  case  of  a  contract  which  is  not  gratuitous 
should  be  equal  on  either  side,  and  that  no  party  should  give  more  than  he  has 
received,  or  receive  more  than  he  has  given.  Everything,  therefore,  that  the ' 
lender  may  demand  from  the  borrower  over  and  above  the  principal  sum,  he 
demands  over  and  above  what  he  has  given  ;  for,  if  he  get  repayment  of  the 
principal  sum,  he  receives  the  exact  equivalent  of  what  lie  gave.  For  things 
that  can  be  used  without  being  destroyed  a  hire  may  certainly  be  demanded, 
because,  this  use  being  separable  at  any  moment  (in  thought  at  least)  from  the 
things  themselves,  it  can  be  priced  ;  it  has  a  price  distinct  from  the  thing.  So 
that,  if  I  have  given  a  thing  of  this  sort  to  any  one  for  his  use,  I  am  able  to 
demand  the  hire,  which  is  the  price  of  the  use  that  I  have  allowed  him  in  it 
beyond  the  restitution  of  the  thing  itself,  the  thing  having  never  ceased  to  be 
my  property. 

"  It  is  not  the  same,  however,  with  those  objects  that  are  known  to  lawyers  as 
fungible  goods — things  that  are  consumed  in  the  using.  For  since,  in  the  using, 
these  are  necessarily  destroyed,  it  is  impossible  in  regard  to  them  to  imagine  a 
use  of  the  thing  as  distinct  from  the  thing  itself,  and  as  having  a  price  distinct 
from  the  thing  itself.  From  this  it  follows  that  one  cannot  make  over  to  another 
the  using  of  a  thing  without  making  over  to  him  wholly  and  entirely  the  thing 
itself,  and  transferring  to  him  the  property  in  it.  If  I  lend  you  a  sum  of  money 
for  your  use  under  the  condition  of  paying  me  back  as  much  again,  then  you. 
receive  from  me  simply  that  sum  of  money,  and  nothing  more.  The  use  that 
you  will  make  of  this  sum  of  money  is  included  in  the  right  of  property  that  you 
acquire  in  this  sum.  There  is  nothing  that  you  have  received  outside  of  the 
sum  of  money.  I  have  given  you  this  sum,  and  nothing  but  this  sum.  I 
can  therefore  ask  yon  to  give  me  back  nothing  more  than  this  amount  lent, 
without  being  unjust ;  for  justice  would  have  it  that  only  that  should  be  claimed 
'which,  was  given." 

1  Amsterdam,  1764. 


54  THE  DEFENCE  OF  INTEREST  BOOK  i 

there  should  not,  properly  speaking,  be  any  charge  made  to 
cover  wear  and  tear.1 

Probably  the  reader  will  think  these  arguments  weak 
enough.  But  Mirabeau,  in  his  blind  zeal,  gets  still  deeper. 
He  cannot  help  seeing  that  the  debtor,  by  employing  the 
money  (emploi},  may  obtain  means  to  pay  interest  for  the 
capital  borrowed.  But  even  this  he  turns  against  interest. 
He  argues  from  it  that  the  borrower  must  always  suffer  injury, 
because  it  is  impossible  to  establish  an  equality  between  in- 
terest and  emploi.  One  does  not  know  how  much  agriculture 
will  yield  to  the  borrowing  agriculturist.  Unforeseen  accidents 
happen,  and  on .  that  account  the  borrower  will  always  lose ! 2 
And  more  than  this.  In  one  place,  from  the  very  natural 
fact  that  any  private  person  is  more  willing  to  take  interest 
than  to  pay  it,  he  deduces,  in  all  seriousness,  an  argument 
to  prove  that  the  paying  of  interest  must  be  hurtful  to  the 
borrower ! 3 

Fortified  by  reasoning  like  this,  his  condemnation  of  money 
interest  is  not  lacking  in  vigour.  "  Take  it  all  in  all,"  he  says,4 
"  money  interest  ruins  society  by  giving  incomes  into  the  hands 
of  people  who  are  neither  owners  of  land  nor  producers,  nor 
industrial  workers,  and  these  people  can  only  be  looked  upon  as 
hornets,  who  live  by  robbing  the  hoards  of  the  bees  of  society." 

But  for  all  that  Mirabeau  cannot  avoid  admitting  that 
interest  may  be  justified  in  certain  cases.  Sorely  against  his 
inclination,  therefore,  he  is  compelled  to  break  through  the 
principle  of  the  prohibition  and  make  some  exceptions,  the 
selection  of  which  is  based  on  quite  arbitrary  and  untenable 
distinctions.5 

Seldom  can  there  have  been  a  more  grateful  task  than 
was  the  refutation  of  this  doctrine  in  the  second  half  of  the 
eighteenth  century.  Long  ago  smitten  with  internal  decay — 
detested  by  some,  despised  by  others — forced  to  lean  on  very 
pitiful  scientific  props — it  had  long  outlived  its  life,  and  only 
raised  its  head  in  the  present  like  some  old  ruin.  The  task 
was  taken  up  by  Turgot,  and  performed  with  ability  as  remark- 
able as  its  results  were  brilliant.  His  Memoire  sur  les  PrSts 

1  P.  269,  etc.  -  Pp.  257-262. 

3  F.  267.  4  P.  284. 

s  See  particularly  pp.  276,  290,  292,  298,  etc. 


CHAP,  ii  MIRABEAU—TURGOT  55 

cC  Argent l  may  be  named  as  companion-piece  to  Salmasius's  writ- 
ings on  Usury.  It  is  true  that  the  student  of  to-day  will  find 
in  his  reasoning  some  good  arguments,  and  not  a  few  bad  ones. 
But,  good  and  bad  alike,  they  are  given  with  so  much  verve 
and  acuteness,  with  such  rhetorical  and  dialectical  skill,  and 
with  such  striking  play  of  fancy,  that  we  can  easily  understand 
how  the  effect  on  his  times  was  nothing  less  than  triumphant. 

As  the  charm  of  his  work  lies  not  so  much  in  the  ideas 
themselves, — which  for  the  most  part  we  have  already  discussed 
in  the  arguments  of  his  predecessors, — as  in  the  charming  way 
in  which  they  are  put,  it  would  only  repay  us  to  go  thoroughly 
into  the  contents  of  the  Mtmoire  if  a  great  deal  of  it  were 
reproduced  in  his  own  words,  which  space  forbids.  I  content 
myself,  therefore,  with  bringing  out  some  of  the  more  marked 
features  of  Turgot's  treatment. 

The  weightiest  justification  of  interest  he  finds  in  the 
right  of  property  which  the  creditor  has  in  his  own  money. 
In  virtue  of  this  he  has  an  "  inviolable  "  right  to  dispose  of  the 
money  as  he  will,  and  to  lay  such  conditions  on  its  alienation 
and  hire  as  seem  to  him  good — e.g.  the  condition  of  interest 
being  duly  paid  (§  23,  etc.)  Evidently  a  crooked  argument 
which  might  prove  the  legitimacy  and  inoffensiveness  of  a 
usurious  interest  of  100  per  cent,  just  as  well  as  the  legitimacy 
of  interest  in  general. 

The  argument  based  on  the  barrenness .  of  money  Turgpt 
dismisses  on  the  same  grounds  as  those  taken  by  his  prede- 
cessors (§  25). 

He  gives  special  attention  to  the  reasoning  of  Pothier 
just  mentioned.  Pothier's  thesis  that,  in  justice,  service  and 
counter-service  should  be  equal  to  each  other,  and  that  this  is 
not  the  case  in  the  loan,  he  answers  by  saying  that  objects 
•  which,  freely  and  without  fraud  or  force,  are  exchanged  against 
each  other  always  have,  in  a  certain  sense,  equal  value.  To 
the  fatal  argument  that,  in  the  case  of  a  perishable  thing,  it  is 
not  possible  to  conceive  of  any  use  separate  from  the  thing 
itself,  he  answers  by  charging  his  opponents  with  legal  hair- 
splitting and  metaphysical  abstraction,  and  brings  forward  the 
old  and  favourite  analogy  between  the  hiring  of  money  and 

1  Written  in  1769  ;  published  twenty  years  later,  1789.     I  quote  from  the 
collected  edition  of  Turgot's  work,  Daire,  Paris,  1844,  vol.  L  pp.  106-152. 


56      .  THE  DEFENCE  OF  INTEREST  BOOK  i 

the  hiring  of  any  durable  thing  like  a  diamond.  "  What ! "  he 
says,  "that  some  one  should  be  able  to  make  me  pay  for  the 
petty  use  that  I  make  of  a  piece  of  furniture  or  a  trinket,  and 
that  it  should  be  a  crime  to  charge  me  anything  for  the  im- 
mense advantage  that  I  get  from  the  use  of  a  sum  of  money 
for  the  same  time ;  and  all  because  the  subtle  intellect  of  a 
lawyer  can  separate  in  the  one  case  the  use  of  a  thing  from 
the  thing  itself,  and  in  the  other  case  cannot !  It  is  realjy 
too  ridiculous!"  (p.  128). 

But  a  moment  later  Turgot  himself  does  not  hesitate  at 
metaphysical  abstraction  and  legal  hair-splitting.  To  refute 
the  argument  that  the  debtor  becomes  proprietor  of  the 
borrowed  money,  and  that  its  use  consequently  belongs  to 
him,  he  makes  out  a  property  in  the  value  of  the  money,  and 
distinguishes  it  from  the  property  in  the  piece  of  metal ;  the 
latter  of  course  passing  over  to  the  debtor,  the  former  remain- 
ing behind  with  the  creditor. 

Very  remarkable,  finally,  are  some  passages  in  which 
Turgot,  following  Galiani's  example,  emphasises  the  influence 
of  time  on  the  valuation  of  goods.  In  one  place  he  draws  the 
parallel  already  familiar  to  us  between  exchange  and  loans. 
Just  as  in  exchange  transactions  we  give  less  money  in  one 
place  to  receive  a  greater  sum  in  another  place,  so  in  the  loan 
we  give  less  money  at  one  point  of  time  to  receive  more 
money  at  another  point  of  time.  The  reason  of  both  pheno- 
mena is,  that  the  difference  of  time,  like  that  of  place,  indicates 
a  real  difference  in  the  value  of  money  (§  23).  On  another 
occasion  he  alludes  to  the  notorious  difference  that  exists  be- 
tween the  value  of  a  present  sum  and  the  value  of  a  sum 
only  obtainable  at  a  future  period  (§  27);  and  a  little  later  he 
exclaims:  "If  these  gentlemen  suppose  that  a  sum  of  1000 
francs  and  a  promise  of  1000  francs  possess  exactly  the  same 
value,  they  put  forward  a  still  more  absurd  supposition;  for 
if  these  two  things  were  of  equal  value,  why  should  any  one 
borrow  at  all  ? " 

Unfortunately,  however,  Turgot  has  not  followed  out  this 
pregnant  idea.  It  is,  I  might  say,  thrown  in  with  his  other 
arguments,  without  having  any  organic  connection  with  them ; 
indeed,  properly  speaking,  it  stands  in  opposition  to  them.  For 
if  interest  and  the  replacement  of  capital  only  make  up  together 


CHAP,  ii  TURGOT  57 

the  equivalent  of  the  capital  that  was  lent,  the  interest  is  then 
a  part  equivalent  of  the  principal  sum.  How  then  can  it  be 
a  payment  for  a  separate  use  of  the  principal  sum,  as  Turgot 
has  just  taken  so  much  trouble  to  prove  ? 

We  may  look  on  Turgot's  controversy  with  Pothier  as  the 
closing  act  of  the  three  hundred  years'  war  which  jurisprudence 
and  political  economy  had  waged  against  the  old  canon 
doctrine  of  interest.  After  Turgot  the  doctrine  disappeared 
from  the  sphere  of  political  economy.  Within  the  sphere  of 
theology  it  dragged  out  a  kind  of  life  for  some  twenty  years 
longer,  till,  finally,  in  our  century  this  also  ended.  When 
the  Eoman  Penitentiary  pronounced  the  taking  of  interest  to 
be  allowable,  even  without  any  peculiar  title,  the  Church  itself 
had  confirmed  the  defeat  of  its  erstwhile  doctrine.1 

Pausing  for  a  moment,  let  us  look  back  critically  over  the 
period  we  have  traversed.  What  are  its  results ;  what  has 
science  gained  during  it  towards  the  elucidation  of  the  interest 
problem  ? 

The  ancient  and  the  canon  writers  had  said,  Loan  interest 
is  an  unjust  defrauding  of  the  borrower  by  the  lender,  for 
money  is  barren,  and  there  is  no  special  "use"  of  money 
which  the  lender  may  justly  sell  for  a  separate  remuneration. 
In  opposition  to  this  the  new  doctrine  runs,  Loan  interest  is 
just;  for,  first,  money  is  not  barren  so  long  as,  by  proper 
employment,  the  lender  might  make  a  profit  with  it,  and  by 
lending  it  gives  up  the  possibility  of  this  profit  in  favour  of. 
the  borrower;  and,  second,  there  is  a  use  of  capital  that  is 
separable  from  capital  itself,  and  may  be  sold  separately 
from  it. 

If  we  put  aside  in  the  meantime  the  latter  more  formal 
point — it  will  come  up  again  later  in  another  connection — 
the  central  idea  01  the  new  doctrine  is  the  suggestion  that 
capital  produces  fruits  to  him  who  employs  it  After  an 
immense  expt  iditure  of  ingenuity,  dialectic,  polemic,  and 
verbiage,  at  bottom  it  is  the  emergence  of  the  same  idea  that 
Adam  Smith  in  his  wonderfully  simple  way  expressed  shortly 

1  Funk,  Zins  und  Wucher,  Tubingen,  1868,  p.  116.     On  the  reception  that 
this  liberal  decision  of  Rome,  18th  August  1830,  met  from  a  portion  of  the  Frenc 
clergy,  see  Molinari,  Cours  cTJEconomie  Politique,  second  edition,  vol.  i.  p.  333. 


58  THE  DEFENCE  OF  INTEREST  BOOK  i 

afterwards  in  the  words  that  contain  his  solution  of  the  whole 
question  whether  interest  is  justifiable  or  not :  "  As  something 
can  everywhere  be  made  by  the  use  of  money,  something  ought 
everywhere  to  be  paid  for  the  use  of  it."  l  Translated  into 
our  modern  terminology,  this  idea  would  run,  "  There  is  loan 
interest  because  there  is  natural  interest." 

Thus  the  theory  of  Salmasius  and  his  followers  in  sub- 
stance amounts  to  explaining  contract  interest  or  loan  interest 
from  the  existence  of  natural  interest. 

How  much  did  the  elucidation  of  the  interest  problem 
gain  by  this  ?  That  the  gain  was  not  inconsiderable  is  attested 
by  the  fact  that  the  intellectual  labour  of  centuries  was  needed 
to  secure  credence  for  the  new  doctrine,  in  the  face  of  opposing 
impressions  and  prejudices.  But  just  as  certain  is  it  that, 
when  this  explanation  was  given,  much  remained  still  to  be 
done.  The  problem  of  loan  interest  was  not  solved ;  it  was 
only  shifted  a  stage  farther  back.  To  the  question,  Why  does 
the  lender  get  from  his  loaned  capital  a  permanent  income 
not  due  to  work  ?  the  answer  was  given,  Because  he  could 
have  obtained  it  if  he  had  employed  the  capital  himself.  But 
why  could  he  have  obtained  this  income  himself  ?  This  last 
question  obviously  is  the  first  to  point  to  the  true  origin  of 
interest;  but,  in  the  period  of  which  we  have  been  speaking, 
not  only  was  this  question  not  answered,  it  was  not  even 
put 

All  attempts  at  explanation  got  the  length  of  this  fact, 
that  the  man  who  has  a  capital  in  his  hand  can  make  a 
profit  with  it.  But  here  they  halt.  They  accept  this  as  a 
fact  without  in  the  least  attempting  to  further  explain  it. 
Thus  Molinaeus,  with  his  proposition  that  money,  assisted  by 
human  exertion,  brings  forth  fruit,  and  with  his  appeal  to 
everyday  experience.  Thus  Salmasius  himself,  with  his 
delightful  badinage  over  the  fruitfulness  of  money,  where  he 
simply  appeals  to  the  fact  without  explaining  it.  And  thus 
too  even  the  later  and  most  advanced  economists  of  the  whole 
period ;  such  men  as  Locke,  Law,  Hume,  James  Steuart,  Justi, 
Sonnenfels.  Now  and  then  they  advance  extremely  clear  and 
thorough  statements  of  how  loan  interest  is  bound  to  emerge 
from  the  possibility  of  making  a  profit,  and  in  the  amount  of 
1  Wealth  of  Nations,  book  iL  chap.  iv. 


CHAP,  ii  RETROSPECT  59 

that  profit  must  find  the  measure  of  its  own  amount.1  But 
not  one  of  them  ever  conies  to  the  question  as  to  the  why 
and  wherefore  of  that  profit.2 

What  Salmasius  and  his  time  had  done  for  the  interest 
problem  cannot  be  better  illustrated  than  by  comparing  it 
with  the  problem  of  land-rent.  Salmasius — of  course  under 
accessory  circumstances  that  made  it  much  more  difficult — 
did  for  the  interest  problem  what  never  required  to  be  done 
for  the  land-rent  problem,  just  because  it  was  too  self-evident ; 
he  proved  that  the  hirer  pays  the  rent  he  has  agreed  to  pay 
because  that  which  is  hired  produces  it.  But  he  failed  to 
do  for  the  interest  problem — indeed,  did  not  in  the  least  try 
to  do — the  one  thing  that  required  scientific  effort  in  the 
sphere  of  land-rent;  he  did  not  explain  why  that  which  bears 
a  rent  when  hired  out  should  bear  a  rent  if  it  remain  in  the 
hands  of  its  owner. 

Thus  everything  that  had  been  done  in  the  period  we  have 
just  been  considering  was,  as  it  were,  the  driving  back  of  an 
advanced  post  on  the  main  army.  The  problem  of  loan  interest 
is  pursued  till  it  falls  in  with  the  general  problem  of  interest. 
But  this  general  problem  is  neither  mastered  nor  even  attacked ; 
at  the  end  of  the  period  the  heart  of  the  interest  problem  is 
as  good  as  untouched. 

All  the  same,  the  period  was  not  quite  barren  of  results  as 

1  E.g.  Sonnenfels,  Handlung,  fifth  edition,  pp.  488,  497  ;  Steuart,  book  iv. 
part  i.  p.  24  ;  Hume,  as  above,  p.  60.     See  above,  pp.  42,  47. 

2  Some  historians  of  theory,  who  are  at  the  same  time  adherents  of  the 
Productivity  theory  (which  we  have  to  examine  later),  such  as  Roscher,  Funk, 
and  Endemann,  ate  fond  of  ascribing  to  the  writers  of  this  period  "presentiments  " 
of  the  "  productivity  of  capital,"  even  "insight"  into  it ;  and  of  claiming  them 
as  forerunners  of  that  theory.     I  think  this  is  a  misunderstanding.      These 
writers  do  speak  of  the  "  fruitfulness  "  of  money,  and  of  all  sorts  of  other  things, 
but  this  expression  with  them  serves  rather  to  name  the  fact  that  certain  things 
bring  forth  a  profit  than  to  explain  it.     They  simply  call  everything. "fruitful" 
that  yields  a  profit  or  a  "fruit,"  and  it  does  not  occur  to  them  to  give  any 
formal  theoretical  explanation  of  the  origin  of  these  profits.     This  is  very  plain 
from   the  writings  of  Salmasius   on  the  subject.      When  Salmasius  calls  air, 
disease,  death,  prostitution,  "fruitful"  (see  note  to  p.  39  above),  it  is  evidently 
only  a  strong  way  of  putting  the  fact  that  the  state  which  lays  taxes  on  the  air, 
the  physician,  the  gravedigger,  the  prostitute,  all  draw  a  profit  from  the  things 
just  named.    But  it  is  just  as  evident  that  Salmasius  did  not  in  the  least  seriously 
think  of  deriving  the  sexton's  fee  from  a  productive  power  that  resides  in  death. 
And  the  fruitfulness  of  money,  which  Salmasius  wished  to  illustrate  by  com- 
paring it  with  these,  is  not  to  be  taken  any  more  seriously. 


60  THE  DEFENCE  OF  INTEREST  BOOK  I 

regards  the  solution  of  the  chief  problem ;  it  at  least  prepared 
the  way  for  future  work  by  elevating  natural  interest,  the  real 
subject  of  the  problem,  out  of  confused  and  hesitating  state- 
ments, and  bringing  it  gradually  to  clear  presentation.  The 
fact  that  every  one  who  works  with  a  capital  makes  a  profit 
had  long  been  known.  But  it  was  a  long  time  before  any  one 
clearly  distinguished  the  nature  of  this  profit,  and  there  was  a 
tendency  to  ascribe  the  whole  of  it  to  the  undertaker's  activity. 
Thus  Locke  himself  looks  on  the  interest  which  the  borrower 
pays  to  the  lender  as  the  "  fruit  of  another  man's  labour,"  and, 
while  conceding  that  the  borrowed  money  employed  in  business 
may  produce  fruit,  expressly  ascribes  the  possibility  of  this  to 
the  exertion  of  the  borrower.  Now  when,  in  justifying  interest, 
one  was  led  to  accent  the  influence  of  capital  in  the  emer- 
gence of  such  profits,  he  was  bound  in  the  end  to  come  to  see 
clearly  that  a  part  of  the  undertaker's  profit  was  a  branch  of 
income  sui  generis,  not  to  be  confounded  with  the  produce  of 
labour — was,  in  fact,  a  peculiar  profit  of  capital  This  insight, 
which  is  to  be  found  quite  clearly  in  germ  in  Molinaeus  and 
Salmasius,  comes  out  with  perfect  distinctness  at  the  end  of  the 
period  in  the  writings  of  Hume  and  others.  But  once  attention 
was  called  to  the  phenomenon  of  natural  interest,  it  was  in- 
evitable that,  sooner  or  later,  people  should  begin  to  ask  about 
the  causes  of  this  phenomenon.  And  with  this  the  history 
of  the  problem  entered  on  a  new  epoch. 


CHAPTEE    III 

TURGOT'S  FRUCTIFICATION  THEORY 

So  far  as  my  knowledge  of  economical  literature  goes,  I  am 
bound  to  consider  Turgot  as  the  first  who  tried  to  give  a  scien- 
tific explanation  of  Natural  Interest  on  capital,  and  accordingly 
as  the  first  economist  who  showed  the  full  extent  of  the 
problem. 

Before  Turgot  the  times  had  been  quite  unfavourable  to 
any  scientific  investigation  into  natural  interest.  It  was  only 
very  recently  that  people  had  come  to  clear  consciousness  that 
in  this  they  had  to  deal  with  an  independent  and  peculiar 
branch  of  income.  But  besides — and  this  was  of  still  greater 
moment — there  had  been  no  outward  occasion  to  draw  dis- 
cussion to  the  nature  of  this  income.  The  problem  of  loan 
interest  had  been  worked  at  from  very  early  times,  because 
loan  interest  had  been  attacked  from  the  field  of  practical  life ; 
and  it  was  thus  early  attacked  because  there  had  been  from 
the  beginning  a  hostile  tension  between  the  interests  of  the 
parties  concerned  in  the  loan  contract,  the  creditors  and  the 
debtors.  It  was  quite  different  in  this  respect  with  natural 
interest.  People  had  scarcely  learned  to  distinguish  it  with 
certainty  from  the  reward  due  to  the  employers  personal 
labour,  and  in  any  case  they  were  still  indifferent  about  it. 
The  power  of  capital  was  yet  insignificant.  Between  capital 
and  labour,  the  two  parties  concerned  in  natural  interest,  scarcely 
any  opposition  had  yet  shown  itself  ;  at  all  events  it  had 
not  developed  into  any  sharp  opposition  of  classes.  So  far, 
therefore,  no  one  was  hostile  to  this  form  of  profit  on  capital, 
and  consequently  no  one  had  any  occasion  from  outside  to 
defend  it,  or  to  make  any  thorough  inquiry  into  its  nature. 


62  TURGOTS  FRUCTIFICATION  THEORY          BOOK  i 

If,  under  such  circumstances,  there  was  any  one  to  whom  it 
occurred  to  do  so,  it  could  only  be  some  systematic  thinker 
with  whom  theorising  was  a  necessity  that  took  the  place  of 
the  external  impulse.  But  up  till  that  time  there  had  been 
no  true  systematiser  of  political  economy. 

The  Physiocrats  were  the  first  to  bring  in  a  real  system. 
For  a  long  time,  however,  even  they  passed  over  our  problem 
without  consideration.  Quesnay,  the  founder  of  the  school, 
so  little  comprehends  the  nature  of  natural  interest  that  he 
sees  in  it  replacement  costs — a  kind  of  reserve  fund,  out  of 
which  the  loss,  in  wearing  out  of  capital  and  by  unforeseen 
accidents,  is  to  be  defrayed — rather  than  a  net  income  of  the 
capitalist.1 

Mercier  de  la  Riviere,2  more  correctly,  recognises  that 
capital  produces  a  net  profit ;  but  he  only  points  out  that 
there  must  be  this  profit  on  the  capital  that  is  employed 
in  agriculture,  if  agriculture  is  not  to  be  abandoned  for  other 
pursuits.  He  does  not  go  on  to  ask  why  capital  in  general 
should  yield  interest.  As  little  does  Mirabeau,  who,  as  we 
saw,  has  written  a  great  deal  on  the  subject  of  interest,  and 
has  written  very  badly.3 

It  was  Turgot,  then,  the  greatest  of  the  physiocrats,  who 
was  also  first  among  them  to  seek  for  a  fuller  explanation  of 
the  fact  of  natural  interest.  Even  his  way  of  treating  the 
problem  is  modest  and  naive  enough :  it  is  easy  to  see  that 
it  was  not  the  fiery  zeal  in  a  great  social  problem  that  forced 
him  to  take  up  the  pen,  but  only  the  need  for  clear  con- 
sistency in  his  ideas — a  need  that  would,  if  necessary,  be 
content  with  an  explanation  of  very  moderate  depth,  provided 
only  it  found  a  plausible  formula. 

1  "  Les  interets  des  avances  de  1'etablissement  des  cultivateurs  doivent  done 
etre  compris  dans  leur  reprises  annuelles.     Us  servent  a  faire  face  a  ces  grands 
accidents  et  a  1'entretien  journalier  des  richesses  d'exploitation,  qui  demandent  a 
etre  repares  sans  cesse"  (Analyse  du  Tableau  Economique,  Edition  Daire,  p. 
62).     See  also  the  more  detailed  statement  that  precedes  the  passage  quoted. 

2  L'Ordrc  Naturel,  Edition  Daire,  p.  459. 

3  On  his  attitude  towards  loan  interest  see  above,  p.  53.     As  regards  natural 
interest,  he  approves  of  interest  as  regards  capital  invested  in  agriculture  (Philo- 
sophic Rurale,  p.  83,  and  then  p.  295)  without  going  any  deeper  in  explanation  ; 
but  he  speaks  of  what  is  gained  in  commerce  and  industry  in  hesitating  terms, 
looking  on  it  rather  as  a   fruit  of  activity,  de  la  profession,  than   of  capital 
(p.  278). 


CHAP,  in  STATEMENT  OF  THE  THEORY  63 

In  the  Memoire  sur  les  Prtits  d' Argent,  already  known  to 
us,  Turgot  simply  deals  with  the  question  of  loan  interest. 
His  more  comprehensive  interest  theory  is  developed  in  his 
chief  work,  Reflexions  sur  la  Formation  et  la  Distribution  des 
Eichesses.1  To  be  correct,  it  is  not  so  much  developed  as 
contained  in  it ;  for  Turgot  does  not  put  the  question  as  to 
the  origin  of  interest  formally,  nor  is  the  consideration  he 
devotes  to  it  a  very  connected  one.  What  we  find  is  a  number 
of  separate  paragraphs  (§§  57,  58,  59,  61,  63,  68,  and  71), 
containing  a  series  of  observations,  out  of  which  we  have 
to  put  together  his  theory  on  the  origin  of  interest  for 
ourselves.2 

Seeing  that  this  theory  bases  the  entire  interest  of  capital 
on  the  possibility  always  open  to  the  owner  of  capital  to 
find  for  it  an  ulterior  fructification  through  the  purchase  of 
rent-bearing  land,  I  propose  to  call  it  shortly  the  Fructification 
theory. 

The  argument  is  as  follows.  The  possession  of  land  guar- 
antees the  obtaining  of  a  permanent  income  without  labour, 
in  the  shape  of  land -rent.  But  since  movable  goods,  inde- 
pendently of  land,  also  permit  of  being  used,  and  on  that 
account  obtain  an  independent  value,  we  may  compare  the 
value  of  both  classes  of  goods ;  we  may  price  land  in  movable 
goods,  and  exchange  it  for  them.  The  exchange  price,  as  in 
the  case  of  all  goods,  depends  on  the  relation  of  supply  and 
demand  (§  85).  At  any  time  it  forms  a  multiple  of  the 
yearly  income  that  may  be  drawn  from  the  land,  and  it  very 
often  gets  its  designation  from  this  circumstance.  A  piece  of 
land,  we  say,  is  sold  for  twenty  or  thirty  or  forty  years' 
purchase,  if  the  price  amounts  to  twenty  or  thirty  or  forty 
times  the  annual  rent  of  the  land.  The  amount  of  the 
multiple,  again,  depends  on  the  relation  of  supply  and  demand  ; 
that  is,  whether  more  or  fewer  people  wish  to  buy  or  sell 
land  (§  88). 

1  First  published  in  1776.     I  quote  from  Daire's  collected  edition  of  Turgot's 
works,  Paris,  1844,  vol.  i. 

2  The  outward  want  of  form  in  Turgot's  explanation  of  interest  has  led  a 
usually  exact  investigator  of  his  works  to  maintain  that  Turgot  does  not  explain 
interest  (Sivers,  Turgots  Stellung,  etc.,  Hildebrand's  Jahrbucher,  vol.  xxii.  pp. 
175,  183,  etc.)    This  is  a  mistake.    It  is,  however  true,  as  we  shall  see,  that  his  ex- 
planation does  not  go  particularly  deep. 


64  TURGOT  S  FRUCTIFICATION  THEORY          BOOK  i 

In  virtue  of  these  circumstances  every  sum  of  money,  and, 
generally  speaking,  every  capital,  is  the  equivalent  of  a  piece 
of  land  yielding  an  income  equal  to  a  certain  percentage  on 
capital  (§  59). 

Since  in  this  way  the  owner  of  a  capital,  by  buying  land, 
is  able  to  obtain  from  it  a  permanent  yearly  income,  he  will 
not  be  inclined  to  put  his  capital  in  an  industrial  (§  61),  agri- 
cultural (§  63),  or  commercial  (§  68)  undertaking,  if  he  cannot 
— leaving  out  of  account  compensation  for  all  ordinary  kinds  of 
costs  and  trouble — expect  just  as  large  a  profit  from  his  capital 
thus  employed  as  he  could  obtain  through  the  purchase  of 
land.  On  that  account  capital,  in  all  these  branches  of  em- 
ployment, must  yield  a  profit. 

Thus,  then,  is  the  economical  necessity  of  natural  interest 
on  capital  first  explained.  Loan  interest  is  deduced  from  it 
simply  in  this  way :  the  undertaker  without  capital  finds  him- 
self willing,  and  economically  too  may  find  himself  willing,  to 
give  up  to  him  who  trusts  him  with  a  capital  a  part  of  the 
profit  which  the  capital  brings  in  (§71).  So  in  the  end  all 
forms  of  interest  are  explained  as  the  necessary  result  of  the 
circumstance,  that  any  one  who  has  a  capital  may  exchange 
it  for  a  piece  of  land  bearing  a  rent. 

It  will  be  noticed  that  in  this  line  of  thought  Turgot  takes 
for  his  foundation  a  circumstance  which  had  been  appealed  to 
for  some  centuries  by  the  defenders  of  loan  interest,  from 
Calvin  downward.  But  Turgot  makes  an  essentially  different 
and  much  more  thorough-going  use  of  this  circumstance.  His 
predecessors  availed  themselves  of  it  occasionally,  and  by  way 
of  illustration.  Turgot  makes  it  the  centre  of  his  system. 
They  did  not  see  in  it  the  sole  ground  of  loan  interest,  but 
co-ordinated  with  it  the  possibility  of  making  a  profit  from 
capital  engaged  in  commerce,  industry,  etc.  Turgot  puts  it 
by  itself  at  the  head  of  everything.  Finally,  they  had  only 
used  it  to  explain  loan  interest.  Turgot  explains  the  entire 
phenomenon  of  interest  by  it.  Thus  was  built  up  a  new  doctrine, 
although  out  of  old  materials, — the  first  general  theory  of 
interest. 

AS  regards  the  scientific  value  of  this  theory,  the  fate  which 
has  befallen  it  is  very  significant.  I  cannot  recollect  ever  read- 
ing a  formal  refutation  of  it :  people  have  tacitly  declared  it 


CHAP,  in  CRITICISM  65 

unsatisfactory,  and  passed  on  to  seek  for  other  explanations. 
It  seems  too  plausible  to  be  refuted ;  too  slight  to  base  any- 
thing on.  We  leave  it  with  the  feeling  that  it  has  not  got 
down  to  the  last  root  of  interest,  even  if  we  cannot  give  any 
very  accurate  account  of  why  and  where  it  fails. 

To  supply  such  an  account  seems  to  me  at  the  present 
time  by  no  means  a  work  of  superfluity.  In  doing  so  I  shall 
not  be  merely  fulfilling  a  formal  duty  which  I  imposed  on 
myself  when  I  undertook  to  write  a  critical  history  of  theory. 
In  pointing  out  where  and  how  Turgot  failed  I  hope  to  make 
perfectly  clear  what  the  heart  of  the  problem  is,  and  what  it  is 
that  every  earnest  attempt  at  solution  must  reckon  with,  and 
thus  to  prepare  the  way  for  the  profitable  pursuit  of  our  future 
task.  The  example  of  a  very  lively  writer  of  our  own  day 
shows  that  we  are  not  yet  so  far  past  Turgot's  line  of  thought 
as  we  might  perhaps  think1 

Turgot's  explanation  of  interest  is  unsatisfactory,  because 
it  is  an  explanation  in  a  circle.  The  circle  is  only  concealed 
by  the  fact  that  Turgot  breaks  off  his  explanation  at'  that  very 
point  where  the  next  step  would  inevitably  have  brought  him 
back  to  the  point  from  which  he  started. 

The  case  stands  thus.  Turgot  says :  A  definite  capital 
must  yield  a  definite  interest,  because  it  may  buy  a  piece  of 
land  bearing  a  definite  rent.  To  take  a  concrete  example. 
A  capital  of  £10,000  must  yield  £500  interest,  because  with 
£10,000  a  man  can  buy  a  piece  of  land  bearing  a  rent  of  £500.2 

But  the  possibility  of  such  a  purchase  is  not  in  itself  an 
ultimate  fact,  nor  is  it  a  fact  that  carries  its  explanation  on  its 
face.  Thus  we  are  forced  to  inquire  further :  Why  can  a  person 
with  a  capital  of  £10,000  buy  a  rent-bearing  piece  of  land 
in  general  and  a  piece  of  land  bearing  £500  rent  in  particular  ? 
Even  Turgot  feels  that  this  question  may  be  put,  and  must  be 
put,  for  he  attempts  to  give  an  answer  to  it  He  appeals  to  the 
relation  of  demand  and  supply,  as  at  any  moment  famishing  the 
ground  for  a  definite  relation  of  price  between  capital  and  land.8 

But  is  this  a  full  and  satisfactory  answer  to  our  ques- 

1  See  the  chapter  on  Henry  George's  Later  Fructification  theory. 

2  Usually  the  rent  of  land  is  somewhat  less  than  interest  on  the  price  paid. 
But  this  circumstance,  fully  explained  by  Turgot  (Reflexions,  §  84),  has  no  in- 
fluence at  all  on  the  principle,  and  may  here  be  simply  neglected. 

3  "  If  four  bushels  of  wheat,  the  net  product  of  an  arpent  of  land,  be  worth 

F 


66  TURGOTS  FRUCTIFICATION  THEORY          BOOK  i 

tion  ?  Certainly  not.  The  man  who,  when  asked  what  deter- 
mines a  certain  price,  answers,  "  Demand  and  supply, "  offers 
a  husk  for  a  kernel.  The  answer  may  be  allowable  in  a 
hundred  cases,  where  it  can  be  assumed  that  the  one  who  asks 
the  question  knows  sufficiently  well  what  the  kernel  is,  and  can 
himself  supply  it.  But  it  is  not  sufficient  when  what  is  wanted 
is  an  explanation  of  a  problem  of  which  we  do  not  yet  know 
the  nature.  If  it  were  sufficient,  we  might  be  quite  content 
to  settle  the  whole  problem  of  interest  simply  by  the  formula ; 
demand  and  supply  regulate  the  prices  of  all  goods  in  such  a 
way  that  a  profit  always  remains  over  to  the  capitalist.  For 
the  interest  problem  throughout  relates  to  phenomena  of  price ; 
e.g.  to  the  fact  that  the  borrower  pays  a  price  for  the  "  use  of 
capital " ;  or  to  the  fact  that  the  price  of  the  finished  product 
is  higher  than  the  price  of  its  costs,  in  virtue  of  which  a  profit 
remains  over  to  the  undertaker.  But  certainly  no  one  would 
find  this  a  satisfactory  explanation. 

We  must  therefore  ask  further,  What  deeper  causes  lie 
behind  demand  and  supply,  and  govern  their  movements  in 
such  a  way  that  a  capital  of  £10,000  can  regularly  be 
exchanged  for  a  rent-bearing  piece  of  land  in  general,  and  a 
piece  of  land  bearing  £500  rent  in  particular?  To  this  ques- 
tion Turgot  gives  no  answer,  unless  we  care  to  look  on  the 
somewhat  vague  words  at  the  beginning  of  §  5  7  as  such ;  and 
if  so  the  answer  cannot  in  any  way  be  thought  satisfactory : 
"  Those  who  had  much  movable  wealth  could  employ  it  not 
only  in  the  cultivation  of  land,  but  also  in  the  different  depart- 
ments of  industry.  The  facility  of  accumulating  this  movable 
wealth,  and  of  making  a  use  of  it  quite  independent  of  land, 
had  the  effect  that  one  could  value  the  pieces  of  land,  and 
compare  their  value  with  that  of  movable  wealth." 

But  if  we  take  up  the  explanation  at  the  point  where 
Turgot  broke  off,  and  carry  it  a  little  farther,  we  shall  dis- 

six  sheep,  the  arpent  which  produced  them  might  have  been  given  for  a  certain 
value — a  greater  value  of  course,  but  always  easy  to  determine  in  the  same 
manner  as  the  price  of  all  other  commodities,  i.e.  first  by  discussion  between  the 
two  contracting  parties,  and  afterwards  by  the  price  current  established  by  the 
competition  of  those  who  wish  to  exchange  lands  against  cattle,  and  of  those  who 
wish  to  give  cattle  to  get  lands  (§  57).  It  is  evident,  again,  that  this  price,  or  this 
number  of  years'  purchase,  ought  to  vary  according  as  there  are  more  or  less 
people  who  wish  to  sell  or  buy  lands,  just  as  the  price  of  all  other  commodities 
varies  by  reason  of  the  different  proportion  between  supply  and  demand  "  (§  58). 


CHAP,  in  CRITICISM  67 

cover  that  this  interest,  which  Turgot  thought  to  explain  as  the 
result  of  the  exchange  relation  between  land  and  capital,  is  in 
reality  the  cause  of  this  exchange  relation.  That  is  to  say, 
whether  it  is  twenty  or  thirty  or  forty  times  the  annual  rent 
that  is  asked  or  offered  for  a  piece  of  land,  depends  chiefly  on 
the  percentage  which  the  capital  that  buys  it  would  obtain 
if  otherwise  employed.  That  piece  of  land  which  yields  £500 
rent  will  be  worth  £10,000  if  and  because  the  rate  of  interest 
on  capital  amounts  to  5  per  cent.  It  will  be  worth  £5000 
if  and  because  the  interest  rate  is  10  per  cent.  It  will  be 
worth  £'20,000  if  and  because  capital  bears  only  2^  per  cent 
interest.  Thus,  instead  of  the  existence  and  height  of  interest 
being  explained  by  the  exchange  relation  between  land  and 
capital,  this  exchange  relation  itself  must  be  explained  by  the 
existence  and  height  of  interest.  Nothing  has  been  done,  there- 
fore, to  explain  interest,  and  the  whole  argument  moves  in  a 
circle. 

I  should  have  confidence  in  finishing  my  criticism  of 
Turgot's  doctrine  at  this  point,  if  I  did  not  feel  myself  bound 
to  be  more  than  usually  careful  in  all  cases  where  the  nature 
of  reciprocal  action  between  economic  phenomena  is  concerned. 
For  I  know  that,  in  the  complexity  of  economical  phenomena, 
it  is  exceedingly  difficult  to  determine  with  certainty  the 
starting-point  of  a  chain  of  reciprocal  causes  and  effects,  and  I 
am  aware  that,  in  deciding  on  such  points,'  we  are  particularly 
exposed  to  the  danger  of  being  misled  by  dialectic.  I  should 
not  like,  therefore,  to  force  on  the  reader  the  opinion  that 
Turgot  here  made  a  mistake,  without  having  removed  every 
suspicion  on  the  point  by  going  over  the  proof  again;  par- 
ticularly as  this  will  give  us  a  good  opportunity  of  putting  the 
character  of  our  problem  in  a  clearer  light. 

Accidents  apart,  a  piece  of  land  will  yield  its  rent  for  a 
practically  infinite  series  of  years.  The  possession  of  it 
assures  the  owner  and  his  heirs  the  amount  of  the  yearly  use, 
not  for  twenty  or  forty  times  only,  but  for  many  hundred 
times — almost  for  an  infinite  number  of  times.  But  as  a 
matter  of  common  experience  this  infinite  series  of  uses,  which, 
added  together,  represent  a  colossal  sum  of  income,  is  regularly 
sold  for  a  fraction  of  this  sum — for  twenty  up  to  forty  times 
the  year's  use — and  this  is  the  fact  we  wish  explained. 


68  TURGOTS  FRUCTIFICATION  THEORY          BOOK  i 

In  explanation  it  cannot  be  enough  to  point  in  a  superficial 
way  to  the  state  of  demand  and  supply.  For  if  demand  and 
supply  are  at  all  times  in  such  a  position  that  this  remarkable 
result  takes  place,  the  regular  recurrence  must  rest  on  deeper 
grounds,  and  these  deeper  grounds  demand  investigation. 

In  passing  I  may  dismiss  the  hypothesis,  which  may  have 
occurred  to  the  reader,  that  the  reason  of  the  low  purchase 
price  is  that  the  owner  only  takes  into  consideration  those  uses 
which  he  himself  may  hope  to  obtain  from  the  land,  and 
neglects  all  that  lie  outside  and  beyond  these.  If  this  hypo- 
thesis were  correct,  then,  seeing  that  the  average  life  of  man, 
and  therefore  of  landowners,  has  not  varied  very  much  in 
historical  times,  the  proportion  of  the  value  of  land  to  the 
rent  of  land  must  have  remained  tolerably  constant.  But  this 
is  by  no  means  the  case.  Indeed  we  see  that  proportion 
varying  from  ten  to  fifty  fold,  in  visible  sympathy  with  the 
rate  of  interest  at  the  time. 

There  must,  therefore,  be  another  reason  for  this  striking 
phenomenon. 

I  think  we  should  all  agree  in  pointing  to  the  following  as 
the  true  reason ; — in  valuing  a  piece  of  land,  we  make  a  dis- 
counting calculation.  Thus  we  value  the  many  hundred  years' 
use  of  a  piece  of  land  at  only  twenty  times  the  annual  use 
when  the  rate  of  interest  is  5  per  cent,  and  at  only  twenty- 
five  times  the  annual  use  when  the  rate  is  4  per  cent, 
because  we  discount  the  value  of  the  future  uses ;  that  is,  we 
estimate  them  in  to-day's  value  at  a  smaller  amount,  pro  rota 
temporis  et  usurarum,  exactly  on  the  same  principle  as  we 
estimate  the  present  capital  value  of  a  limited  or  perpetual 
claim  on  rent. 

If  this  is  so,  and  I  do  not  think  it  will  be  doubted, 
then  the  capital  valuation  of  land  to  which  Turgot  appealed  in 
explanation  of  the  phenomenon  of  interest,  is  itself  nothing  more 
than  one  of  the  many  forms  in  which  that  phenomenon  meets 
us  in  economic  life.  For  that  phenomenon  is  protean.  It 
meets  us  sometimes  as  the  explicit  payment  of  a  loan  interest ; 
sometimes  as  payment  of  a  hire  which  leaves  a  "  net  use  "  to 
the  owner  after  deduction  of  a  quota  for  wear  and  tear ;  some- 
times as  the  difference  in  price  between  product  and  costs, 
which  falls  to  the  undertaker  as  profit;  sometimes  as  the  prior 


CHAP,  in  CRITICISM  69 

deduction  by  the  creditor  from  the  amount  of  the  loan  granted 
to  the  debtor  ;  sometimes  as  the  raising  of  the  purchase  money 
in  cases  of  postponed  payment ;  sometimes  as  the  limitation  of 
the  purchase  money  for  claims,  prerogatives,  and  privileges 
not  yet  due;  sometimes,  finally — to  mention  an  instance 
closely  related,  indeed  essentially  the  same — as  the  lowering 
of  the  purchase  money  paid  for  uses  inseparable  from  a  piece 
of  land,  but  only  available  at  a  later  date. 

To  trace  the  profit  that  capital  obtains  in  commerce  and 
industry  to  the  possibility  of  acquiring  land  in  exchange  for 
definite  sums  of  capital,  is,  therefore,  nothing  else  than  to 
refer  from  one  phenomenal  form  of  interest  to  another  which 
is  as  much  in  need  of  explanation  as  the  first.  Why  do -we 
obtain  interest  on  capital  ?  why  do  we  discount  the  value  of 
future  rates  of  payment  or  rates  of  use  ?  These  are  evidently 
only  two  different  forms  of  the  question  which  puts  the  same 
riddle.  And  the  solution  of  it  gains  nothing  from  a  kind  of 
explanation  that  begins  with  the  former  question,  only  to  come 
to  a  stand  before  the  latter  one. 


CHAPTER  IV 

ADAM  SMITH  AND  THE  DEVELOPMENT  OF  THE  PROBLEM 

IT  has  never,  I  think,  been  the  good  fortune  of  any  founder 
of  a  scientific  system  to  think  out  to  the  very  end  even  the 
more  important  ideas  that  constitute  his  system.  The  strength 
and  lifetime  of  no  single  man  are  sufficient  for  that.  It  is 
enough  if  some  few  of  the  ideas  which  have  to  play  the 
chief  part  in  the  system  are  put  on  a  perfectly  safe  founda- 
tion, and  analysed  in  all  their  ramifications  and  complexities. 
It  is  a  great  deal  if,  over  and  above  that,  an  equal  carefulness 
falls  to  the  lot  of  a  few  other  favoured  members  of  the  system. 
But  in  all  cases  the  most  ambitious  spirit  must  be  content  to 
build  up  a  great  deal  that  is.  insecure,  and  to  fit  into  his 
system,  on  cursory  examination,  ideas  which  it  was  not  permitted 
him  to  work  out. 

We  must  keep  these  considerations  before  us  if  we  would 
rightly  rppreciate  Adam  Smith's  attitude  towards  our  problem. 

Adam  Smith  has  not  overlooked  the  problem  of  interest ; 
neither  has  he  worked  it  out.  He  deals  with  it  as  a  great 
thinker  may  deal  with  an  important  subject  which  he  often 
comes  across,  but  has  not  time  or  opportunity  to  go  very 
deeply  into.  He  has  adopted  a  certain  proximate  but  still 
vague  explanation.  The  more  indefinite  this  explanation  is, 
the  less  does  it  bind  him  to  strict  conclusions ;  and  a  many- 
sided  rnind  like  Adam  Smith's,  seeing  all  the  many  different 
ways  in  which  the  problem  can  be  put,  but  lacking  the 
control  which  the  possession  of  a  distinct  theory  gives,  could 
scarcely  fail  to  fall  into  all  sorts  of  wavering  and  -contradictory 
expressions.  Thus  we  have  the  peculiar  phenomenon  that, 
while  Adam  Smith  has  not  laid  down  any  distinct  theory  of 


CHAP,  iv  NO  DEFINITE  THEORY  71 

interest,  the  germs   of  almost  all   the  later   and   conflicting 
theories  are  to  be  found,  with  more   or  less  distinctness,  in 
his  scattered   observations.     We   find  the  same  phenomenon  ( 
in  Adam  Smith  as  regards  many  other  questions. 

The    line    of   thought    which    seems    to    commend    itself 
1  principally  to  him  as  explaining  natural  interest  occurs  in  very 
1  similar  language  in  the  sixth  and  eighth  chapters  of  book  i.  of 
the  Wealth  of  Nations.     It  amounts  to  this,  that  there  must  be  a 
profit  from  capital,  because  otherwise  the  capitalist  would  have 
no  interest  in  spending  his  capital  in  the  productive  employ- 
ment of  labourers.1 

General  expressions  like  these  have  of  course  no  claim  to 
stand  for  a  complete  theory.2  There  is  no  reasoned  attempt  in 
them  to  show  what  we  are  to  represent  as  the  actual  connect- 
ing links  between  the  psychological  motive  of  the  capitalist's 
self-interest  and  the  final  fixing  of  market  prices  which  leave 
a  difference  between  costs  and  proceeds  that  we  call  interest. 
But  yet,  if  we  take  those  expressions  in  connection  with  a 
later  passage,3  where  Smith  sharply  opposes  the  "  future  profit " 
that  rewards  the  resolution  of  the  capitalist  to  the  "present 
enjoyment "  of  immediate  consumption,  we  may  recognise  the 
first  germs  of  that  theory  which  Senior  worked  out  later  on 
under  the  name  of  the  Abstinence  theory. 

In  the  same  way  as  Adam  Smith  asserts  the  necessity  of 
interest,  and  leaves  it  without  going  any  deeper  in  the  way 
of  proof,  so  does  he  avoid  making  any  systematic  investigation 
of  the  important  question  of  the  source  of  undertaker's  profit. 
He  contents  himself  with  making  a  few  passing  observa- 

1  "  In  exchanging  the  complete  manufacture  either  for  money,  for  labour,  or 
for  other  goods,  over  and  above  what  may  be  sufficient  to  pay  the  price  of  the 
materials  and  the  wages  of  the  workmen,  something  must  be  given  for  the  profits 
of  the  undertaker  of  the  work,  who  hazards  his  stock  in  the  adventure.  .  .  .  He 
could  have  no  interest  to  employ  them  unless  he  expected  from  the  sale  of  their 
work  something  more  than  what  was  sufficient  to  replace  his  stock  to  him  ;  and 
he  could  have  no  interest  to  employ  a  great  stock  rather  than  a  small  one  unless 
his  profits  were  to  bear  some  proportion  to  the  extent  of  his  stock  "  (M'Culloch's 
edition  of  1863,  p.  22).     f  he  second  passage  runs  :  "  And  who  would  have  no 
interest  to  employ  him  unless  he  was  to  share  in  the  produce  of  his  labour,  or 
unless  his  stock  was  to  be  replaced  to  him  with  a  profit "  (p.  30). 

2  See  also  Pierstorff,  Lehre  vom  Unternehmergewinn,  Berlin,  1875,  p.  6 ;  and 
Platter,  "  Der  Kapitalgewinn  bei  Adam  Smith  "  (Hildebrand's  Jalirbiidwr,  vol. 
xxv.  p.  317,  etc.) 

3  Book  ii.  chap.  i.  p.  123,  in  M'Culloch's  edition. 


72  ADAM  SMITH  BOOK  i 

tions  on  the  subject.  Indeed  in  different  places  he  gives 
two  contradictory  accounts  of  this  profit.  According  to  one 
account,  the  profit  of  capital  arises  from  the  circumstance, 
that,  to  meet  the  capitalist's  claim  to  profit,  buyers  have  to 
submit  to  pay  something  more  for  their  goods  than  the  value 
which  these  goods  would  get  from  the  labour  expended  on 
them.  According  to  this  explanation,  the  source  of  interest  is 
an  increased  value  given  to  the  product  over  that  value  which 
labour  creates ;  but  no  explanation  of  this  increase  in  value  is 
given.  According  to  the  second  account,  interest  is  a  deduc- 
tion which  the  capitalist  makes  in  his  own  favour  from  the 
return  to  labour,  so  that  the  workers  do  not  receive  the  full 
value  created  by  them,  but  are  obliged  to  share  it  with  the 
capitalist.  According  to  this  account,  profit  is  a  part  of  the 
value  created  by  labour  and  kept  back  by  capital. 

Both  accounts  are  to  be  found  in  a  great  number  of 
passages ;  and  these  passages,  oddly  enough,  sometimes  stand 
quite  close  to  each  other,  as,  e.g.  in  the  sixth  chapter  of  the 
first  book. 

Adam  Smith  has  been  speaking  in  that  chapter  of  a  past 
time, — of  course  a  mythical  time, — when  the  land  was  not  yet 
appropriated,  and  when  an  accumulation  of  capital  had  not  yet 
begun,  and  has  made  the  remark  that,  at  that  time,  the  quantity 
of  labour  required  for  the  production  of  goods  would  be  the 
sole  determinant  of  their  price.  He  continues :  "  As  soon 
as  stock  has  accumulated  in  the  hands  of  particular  persons, 
some  of  them  will  naturally  employ  it  in  setting  to  work 
industrious  people,  whom  they  will  supply  with  materials 
and  subsistence,  in  order  to  make  a  profit  by  the  sale  of  their 
work,  or  by  what  their  labour  adds  to  the  value  of  the 
materials.  In  exchanging  the  complete  manufacture  either 
for  money,  for  labour,  or  for  other  goods,  over  and  above 
what  may  be  sufficient  to  pay  the  price  of  the  materials 
and  the  wages  of  the  workmen,  something  must  be  given  for 
the  profits  of  the  undertaker  of  the  work,  who  hazards  his  stock 
in  this  adventure." 

This  sentence,  when  taken  with  the  opposite  remark  of 
the  previous  paragraph  (that,  in  primitive  conditions,  labour 
is  the  sole  determinant  of  price),  very  clearly  expresses  the 
opinion  that  the  capitalist's  claim  of  interest  causes  a  rise  in 


CHAP,  iv  CONTRADICTIONS  73 

the  price  of  the  product,  and  is  met  from  this  raised  price. 
But  Adam  Smith  immediately  goes  on  to  say :  "  The  value  which 
the  workman  adds  to  the  material,  therefore,  resolves  itself  in 
this  case  into  two  parts,  of  which  the  one  pays  the  wages, 
the  other  the  profits  of  the  employer  upon  the  whole  stock  of 
materials  and  wages  which  he  advanced."  Here  again  the  price 
of  the  product  is  looked  upon  as  exclusively  determined  by  the 
quantity  of  labour  expended,  and  the  claim  of  interest  is  said  to 
be  met  by  a  part  of  the  return  which  the  worker  has  produced. 

We  meet  the  same  contradiction,  put  even  more  strikingly, 
a  page  farther  on. 

"  In  this  state  of  things,"  says  Adam  Smith,  "  the  whole 
produce  of  labour  does  not  always  belong  to  the  labourer.  He 
must  in  most  cases  share  it  with  the  owner  of  the  stock  which 
employs  him."  This  is  an  evident  paraphrase  of  the  second 
account.  But  immediately  after  that  come  the  words  :  "  Neither 
is  the  quantity  of  labour  commonly  employed  in  acquiring  or 
producing  any  commodity,  the  only  circumstance  which  can 
regulate  the  quantity  winch  it  ought  commonly  to  purchase, 
command,  or  exchange  for.  An  additional  quantity,  it  is 
evident,  must  be  due  for  the  profits  of  the  stock  which 
advanced  the  wages  and  furnished  the  materials  of  that  labour." 
He  could  scarcely  have  said  more  plainly  that  the  effect  of  a 
claim  of  interest  is  to  raise  prices  without  curtailing  the  wages 
of  labour. 

Later  on  he  says  alternately  :  "  As  in  a  civilised  community 
there  are  but  few  commodities  of  which  the  exchangeable  value 
arises  from  labour  only,  rent  and  profit  contributing  largely  to 
that  of  the  far  greater  part  of  them,  so  the  annual  produce  of 
its  labour  will  always  be  sufficient  to  purchase  or  command  a 
much  greater  quantity  of  labour  than  was  employed  in  raising, 
preparing,  and  bringing  that  produce  to  market "  (first  account, 
chap,  vi)  "  The  produce  of  almost  all  other  labour  is  liable  to 
the  like  deduction  of  profit.  In  all  arts  and  manufactures  the 
greater  part  of  the  workmen  stand  in  need  of  a  master  to 
advance  them  the  materials  of  their  work,  and  their  wages  and 
maintenance  till  it  be  completed.  He  shares  in  the  produce 
of  their  labour,  or  iu  the  value  which  it  adds  to  the  materials 
upon  which  it  is  bestowed ;  and  in  this  consists  his  profit " 
(second  account,  chap,  viii.) 


74  ADAM  SMITH  BOOK  i 

"  High  or  low  wages  and  profit  are  the  causes  of  high  or 
low  price ;  high  or  low  rent  is  the  effect  of  it "  (first  account, 
chap,  xi.) 

Contradictions  like  these  on  the  part  of  such  an  eminent 
thinker  admit,  I  think,  of  only  one  explanation; — that  Adam 
Smith  had  not  thoroughly  thought  out  the  interest  problem ; 
and — as  is  usual  with  those  who  have  only  imperfectly 
mastered  a  subject — was  not  very  particular  in  his  choice  of 
expressions,  but  allowed  himself  to  be  swayed  very  much  by 
the  changing  impressions  which  the  subject  may  have  made 
on  him  from  time  to  time. 

Adam  Smith,  then,  has  no  perfected  theory  of  interest.1 
But  the  suggestions  he  threw  out  were  all  destined  to  fall 
on  fruitful  soil.  His  casual  remark  on  the  necessity  of 
interest  was  developed  later  into  the  Abstinence  theory.  In 
the  same  way  the  two  accounts  he  gave  of  the  source  of 
interest  were  taken  up  by  his  followers,  logically  carried  out, 
and  raised  into  principles  of  independent  theories.  Witli 
the  first  account — that  interest  is  paid  out  of  an  additional 
value  which  the  employment  of  capital  calls  into  existence — 
are  connected  the  later  Productivity  theories.  With  the  second 
account — that  interest  is  paid  out  of  the  return  to  labour — are 
connected  the  Socialist  theories  of  interest.  Thus  the  most 
important  of  later  theories  trace  their  pedigree  back  to  Adam 
Smith. 

The  position  taken  by  Adam  Smith  towards  the  question 
may  be  called  that  of  a  complete  neutrality.  He  is  neutral 
in  his  theoretical  exposition,  for  he  takes  the  germs  of 
distinct  theories  and  puts  them  beside  each  other,  without 
giving  any  one  of  them  a  distinct  prominence  over  the  others. 
And  he  is  neutral  in  his  practical  judgment,  for  he  maintains 
the  same  reserve,  or  rather  the  same  contradictory  hesitancy, 
both  in  praise  and  blame  of  interest.  Sometimes  he  com- 
mends the  capitalists  as  benefactors  of  the  human  race,  and  as 
authors  of  enduring  blessing ; 2  sometimes  he  represents  them 

1  When  Platter  in  the  essay  above  mentioned  (p.  71)  comes  to  the  conclusion 
that,  "if  Smith's  system  be  taken  strictly,  profit  on  capital  appears  unjustifiable," 
it  could  only  be  by  laying  all  the  weight  on  the  one  half  of  Smith's  expressions, 
and  leaving  the  other  out  of  account  as  contradictory  to  his  other  principles. 

-  Book  ii.  chap.  iii. 


CHAP,  iv  GROWTH  OF  CAPITAL  75 

as  a  class  who  live  on  deductions  from  the  produce  of  other 
people's  labour,  and  compares  them  significantly  with  people 
"  who  love  to  reap  where  they  never  sowed." ] 

In  Adam  Smith's  time  the  relations  of  theory  and  practice 
still  permitted  such  a  neutrality,  but  it  was  not  long  allowed 
to  his  followers.  Changed  circumstances  compelled  them  to 
show  their  colours  on  the  interest  question,  and  the  compulsion 
was  certainly  not  to  the  disadvantage  of  the  science. 

The  special  requirements  of  economic  theory  could  not  any 
longer  put  up  with  uncertain  makeshifts.  Adam  Smith*  had 
spent  his  life  in  laying  down  the  foundations  of  his  system. 
His  followers,  finding  the  foundations  laid,  had  now  time  to  take 
up  those  questions  that  had  been  passed  over.  The  develop- 
ment now  reached  by  the  related  problems  of  land -rent  and 
wages  gave  a  strong  inducement  to  pursue  the  interest  problem. 
There  was  a  very  complete  theory  of  land -rent;  there  was  a 
theory  of  wages  scarcely  less  complete.  Nothing  was  more 
natural  than  that  systematic  thinkers  should  now  begin  to 
ask  in  earnest  about  the  third  great  branch  of  income — the 
whence  and  wherefore  of  the  income  that  comes  from  the 
possession  of  capital. 

But  in  the  end  practical  life  also  began  to  put  this 
question.  Capital  had  gradually  become  a  power.  Machinery 
had  appeared  on  the  scene  and  won  its  great  triumphs ;  and 
machinery  everywhere  helped  to  extend  business  on  a  great 
scale,  and  to  give  production  more  and  more  of  a  capitalist 
character.  But  this  very  introduction  of  machinery  had  begun 
to  reveal  an  opposition  which  was  forced  on  economic  life  with 
the  development  of  capital,  and  daily  grew  in  importance, — 
the  opposition  between  capital  and  labour. 

In  the  old  handicrafts  undertaker  and  wage-earner,  master 
and  apprentice,  belonged  not  so  much  to  different  social  classes 
as  simply  to  different  generations.  What  the  one  was  the  other 
might  be,  and  would  be.  If  their  interests  for  a  time  did  diverge, 
yet  in  the  long  run  the  feeling  prevailed  that  they  belonged 
to  one  station  of  life.  It  is  quite  different  in  great  capitalist  in- 
dustry. The  undertaker  who  contributes  the  capital  has  seldom 

1  Book  i.  chap.  vi.  The  sentence  was  written  primarily  about  landowners, 
but  in  the  whole  chapter  interest  on  capital  and  rent  of  land  are  treated  as  parallel 
as  against  wages  of  labour. 


76  DEVELOPMENT  OF  THE  PROBLEM  BOOK  i 

or  never  been  a  workman ;  the  workman  who  contributes  his 
thews  and  sinews  will  seldom  or  never  become  an  undertaker. 
They  work  at  one  trade  like  master  and  apprentice ;  but  not 
only  are  they  of  two  different  ranks,  they  are  even  of  different 
species.  They  belong  to  classes  whose  interests  diverge  as 
widely  as  their  persons,  Now  machinery  had  shown  how  sharp 
could  be  the  collision  of  interest  between  capital  and  labour. 
Those  machines  which  bore  golden  fruit  to  the  capitalist 
undertaker  had,  on  their  introduction,  deprived  thousands  of 
workers  of  their  bread.  Even  now  that  the  first  hardships 
are  over  there  remains  antagonism  enough  and  to  spare. 
It  is  true  that  capitalist  and  labourer  share  in  the  productive- 
ness of  capitalist  undertaking,  but  they  share  in  this  way,  that 
the  worker  usually  receives  little — indeed  very  little — while 
the  undertaker  receives  much.  The  worker's  discontent  with 
his  small  share  is  not  lessened,  as  it  used  to  be  in  the  case  of 
the  handicraft  assistant,  by  the  expectation  of  himself  in  time 
enjoying  the  lion's  share ;  for,  under  large  production,  the 
worker  has  no  such  expectation.  On  the  contrary,  his  discon- 
tent is  aggravated  by  the  knowledge  that  to  him,  for  his  scanty 
wage,  falls  the  harder  work ;  while  to  the  undertaker,  for  his 
ample  share  in  the  product,  falls  the  lighter  exertion — often 
enough  no  personal  exertion  whatever.  Looking  at  all  these 
contrasts  of  destiny  and  of  interest,  if  there  ever  came  the 
thought  that,  at  bottom,  it  is  the  workers  who  bring  into 
existence  the  products  from  which  the  undertaker  draws  his 
profit — and  Adam  Smith  had  come  wonderfully  near  to  such 
a  thought  in  many  passages  of  his  widely  read  book — it  was 
inevitable  that  some  pleader  for  the  fourth  estate  should  begin 
to  put  the  same  question  with  regard  to  Natural  interest  as 
had  been  put  many  centuries  earlier,  by  the  friends  of  the 
debtor,  with  regard  to  Loan  interest,  Is  interest  on  capital  just? 
Is  it  just  that  the  capitalist-undertaker,  even  if  he  never  moves 
a  finger,  should  receive,  under  the  name  of  profit,  a  consider- 
able share  of  what  the  workers  have  produced  by  their 
exertions  ?  Should  not  the  entire  product  rather  fall  to  the 
workers  ? 

The  question  has  been  before  the  world  since  the  first 
quarter  of  our  century,  at  first  put  modestly,  then  with  in- 
creasing assertiveness ;  and  it  is  this  fact  that  the  interest 


CHAP,  iv        THE  PROBLEM  AFTER  ADAM  SMITH  77 

theory  has  to  thank  for  its  unusual  and  lasting  vitality.  So 
long  as  the  problem  interested  theorists  alone,  and  was  of  im- 
portance only  for  purposes  of  theory,  it  might  have  slumbered 
on  undisturbed.  But  it  was  now  elevated  to  the  rank  of  a 
great  social  problem  which  the  science  neither  could  nor  would 
overlook.  Thus  the  inquiries  into  the  nature  of  Natural 
interest  were  as  numerous  and  solicitous  after  Adam  Smith's 
day  as  they  had  been  scanty  and  inadequate  before  it. 

It  must  be  admitted  that  they  were  as  diverse  as  they  were 
numerous.  Up  till  Adam  Smith  the  scientific  opinion  of  the 
time  had  been  represented  by  one  single  theory.  After  him 
opinion  was  divided  into  a  number  of  theories  conflicting  with 
each  other,  and  remaining  so  with  rare  persistence  up  till  our 
own  day.  It  is  usually  the  case  that  new  theories  put  them- 
selves in  the  place  of  the  old,  and  the  old  gradually  yield  the 
position.  But  in  the  present  case  each  new  theory  of  interest 
only  succeeded  in  placing  itself  by  the  side  of  the  old,  while 
the  old  managed  to  hold  their  place  with  the  utmost  stubborn- 
ness. In  these  circumstances  the  course  of  development  since 
Adam  Smith's  time  presents  not  so  much  the  picture  of  a 
progressive  reform  as  that  of  a  schismatic  accumulation  of 
theories. 

The  work  we  have  now  before  us  is  clearly  marked  out  by 
the  nature  of  the  subject.  It  will  consist  in  following  the 
development  of  all  the  diverging  systems  from  their  origin 
down  to  the  present  time,  and  in  trying  to  form  a  critical 
opinion  on  the  value,  or  want  of  value,  of  each  individual 
system.  As  the  development  from  Adam  Smith  onwards 
simultaneously  pursues  different  lines,  I  think  it  best  to 
abandon  the  chronological  order  of  statement  ,  which  I  have 
hitherto  observed,  and  to  group  together  our  material  accord- 
ing to  theories. 

To  this  end  I  shall  try  first  of  all  to  make  a  methodical 
survey  of  the  whole  mass  of  literature  which  will  occupy  our 
attention.  This  will  be  most  easily  done  by  putting  the 
characteristic  and  central  question  of  the  problem  in  the  fore- 
ground. We  shall  then  see  at  a  glance  how  the  theory 
differentiates  itself  on  that  central  question  like  light  on  the 
prism. 

What  we  have  to  explain  is  the  fact  that,  I  when  capital  is 


78  DEVELOPMENT  OF  THE  PROBLEM  BOOK  i 

productively  employed,  there  regularly  remains  over  in  the 
hands  of  the  undertaker  a  surplus  proportional  to  the  amount 
of  this  capital.  This  surplus  owes  its  existence  to  the  circum- 
stance that  the  value  of  the  goods  produced  by  the  assistance 
of  capital  is  regularly  greater  than  the  value  of  the  goods 
consumed  in  their  production.  The  question  accordingly  is, 
Why  is  there  this  constant  surplus  value  ? 

To  this  question  Turgot  had  answered,  There  must  be  a 
surplus,  because  otherwise  the  capitalists  would  employ  their 
capital  in  the  purchase  of  land.  Adam  Smith  had  answered, 
There  must  be  a  surplus,  because  otherwise  the  capitalist  would 
have  no  interest  in  spending  his  capital  productively. 

Both  answers  we  have  already  pronounced  insufficient. 
What  then  are  the  answers  given  by  later  writers  ? 

At  the  outset  they  appear  to  me  to  follow  five  different 
lines. 

One  party  is  content  with  the  answers  given  by  Turgot 
and  Smith,  and  stands  by  them.  This  line  of  explanation  was 
still  a  favourite  one  at  the  beginning  of  our  century,  but  has 
been  gradually  abandoned  since  then.  I  shall  group  these 
answers  together  under  the  name  of  the  Colourless  theories. 

A  second  party  says,  Capital  produces  the  surplus.  This 
\  school,  amply  represented  in  economic  literature,  may  be  con- 
\  veniently  called  that  of  the  Productivity  theories.  I  may  here 
note  that  in  their  later  development  we  shall  find  the  pro- 
ductivity theories  splitting  up  into  many  varieties ;  into  Pro- 
ductivity theories  in  the  narrower  sense,  that  assume  a  direct 
production  of  surplus  on  the  part  of  capital;  and  into  Use 
theories,  which  explain  the  origin  of  interest  in  the  roundabout 
way  of  making  the  productive  use  of  capital  a  peculiar  element 
in  cost,  which,  like  every  other  element  of  cost,  demands  com- 
pensation. 

A  third  party  answers,  Surplus  value  is  the  equivalent  of  a 
cost  which  enters  as  a  constituent  into  the  price,  viz.  abstinence. 
For  in  devoting  his  capital  to  production  the  capitalist  must 
give  up  the  present  enjoyment  of  it.  This  postponement  of 
I  enjoyment,  this  "  abstinence,"  is  a  sacrifice,  and  as  such  is  a 
'  constituent  element  in  the  costs  of  production  which  demands 
compensation.  I  shall  call  this  the  Abstinence  theory. 

A  fourth  party  sees  in  surplus  value  the  wage  for  work 


CHAP,  iv  THE  FIVE  ANSWERS  79 

contributed  by  the  capitalist.  For  this  doctrine,  which  also 
is  amply  represented,  I  shall  use  the  name  Labour  theory. 

Finally,  a  fifth  party — for  the  most  part  belonging  to  the 
socialist  side — answers,  Surplus  value  does  not  correspond  to 
any  n.atural  surplus  whatever,  but  has  its  origin  simply  in  the 
curtailment  of  the  just  wage  of  the  workers.  I  shall  call  this 
the  Exploitation  theory. 

These  are  the  principal  lines  of  explanation.  They  are 
certainly  numerous  enough,  yet  they  are  far  from  exhibiting 
all  the  many  forms  which  the  interest  theory  has  taken.  We 
shall  see  rather  that  many  of  the  principal  lines  branch  off 
again  into  a  multitude  of  essentially  different  types ;  that  in 
many  cases  elements  of  several  theories  are  bound  up  in  a 
new  and  peculiar  combination ;  and  that,  finally,  within  one  and 
the  same  theoretical  type,  the  different  ways  in  which  common 
fundamental  thoughts  are  formulated,  are  often  so  strongly 
contrasted  and  so  characteristic  that  there  would  be  some 
justification  in  recognising  individual  shades  of  difference  as 
separate  theories.  That  our  prominent  economic  writers  have 
exerted  themselves  in  so  many  different  ways  for  the  discovery 
of  the  truth  is  an  eloquent  witness  of  its  discovery  being  no 
less  important  than  it  is  hard. 

We  begin  with  a  survey  of  the  Colourless  theories. 


CHAPTEK    V 

THE    COLOURLESS    THEORIES 

THE  revolution  spoken  of  at  the  end  of  last  chapter,  which 
was  to  elevate  the  long  underrated  question  of  interest  into  a 
social  problem  of  the  first  rank,  was  not  sudden  enough  to 
prevent  a  number  of  writers  remaining  content  with  the  some- 
what patriarchal  treatment  that  the  subject  had  received  at 
the  hands  of  Turgot  and  Adam  Smith.  It  would  be  a  great 
mistake  to  suppose  that  among  these  stragglers  we  should  only 
meet  with  men  of  no  independence,  writers  of  second  and  third 
rank.  Of  course  there  is  the  usual  crowd  of  little  men  who 
always  appear  in  the  wake  of  a  pioneering  genius,  and  find  their 
mission  in  popularising  the  new  doctrine.  But  besides  these 
we  find  many  a  distinguished  thinker  who  passes  over  our 
problem  1'rom  motives  yery  similar  to  those  of  Adam  Smith. 

It  is  easy  to  see  tnat  the  opinions  which  those  "colour- 
less" writers,  as  I  shall  call  them,  have  expressed  on  the 
subject  of  interest  have  exerted  but  little  influence  on  the 
development  of  the  theory  as  a  whole.  This  circumstance 
will  justify  me  in  passing  rapidly  over  the  majority  of  them, 
and  giving  a  complete  account  only  of  the  few  who  may  attract 
our  interest  either  by  their  personality  or  by  the  peculiarity 
of  their  doctrine. 

Any  one  familiar  with  the  character  of  German  political 
economy  at  the  end  of  the  past,  and  at  the  beginning  of  the 
present  century,  will  not  be  astonished  to  meet  in  it  a  singularly 
large  number  of  colourless  writers.  Their  indifference  to  the 
subject  is  not  without  a  certain  variety.  Some  who  remain 
faithful  to  Adam  Smith  copy  also  his  vague  suggestions  about 
interest  almost  literally ;  in  particular  his  remark  that,  if  there 


CHAP,  v  IN  GERMANY  81 

were  no  interest,  the  capitalist  would  have  no  inducement  to 
spend  his  capital  productively.  Thus  Sartorius,1  Lueder,2  and 
Kraus.3  Some  take  the  same  fundamental  idea,  but  treat  it 
more  freely,  as  Hufeland4  and  Seuter.5  Others  assume  that 
interest  requires  no  explanation,  and  say  nothing  about  it,  as 
Politz,6  and,  somewhat  later,  Murhard.7  Others,  again,  give 
reasons  for  it  that  are  certainly  peculiar,  but  these  so  superficial 
and  trifling  that  they  can  scarcely  lay  claim  to  the  honourable 
name  of  theories.  Thus  Schmalz,  who  argues  in  a  circle  and 
explains  the  existence  of  natural  interest  by  the  possibility  of 
lending  capital  to  others  at  interest.8 

Count  Cancrin's  explanation  of  the  matter  is  peculiarly 
naive.  For  curiosity's  sake,  I  give  the  short  passage  in  his 
own  words  :  "  Every  one  knows,'5  he  says,9  "  that  money  bears 
interest,  but  why?  If  two  owners  of  real  capital  wish  to 
exchange  their  products,  each  of  them  is  disposed  to  demand  for 
the  labour  of  storing,  and  as  profit,  as  much  over  the  intrinsic 
value  of  the  product  as  the  other  will  grant  him  ;  necessity,  how- 
ever, makes  them  meet  each  other  half  way.  But  money 
represents  real  capital :  with  real  capital  a  profit  can  be  made ; 
and  hence  interest." 

The  words  printed  in  italics  are  meant  to  explain  the 
existence  of  natural  interest,  the  others  the  existence  of  loan 
interest;  and  the  author  considers  this  explanation  so 
satisfactory  that  in  a  later  passage  he  refers  back  to  it  with 

1  Handbuch  der  Staatewirthschaft,  Berlin,  1796,  particularly  §§  8  and  23.  Even 
his  later  Abhandlungen  die  Elemente  des  NationalreicMhums  und  die  Staatswirth- 
schaft  betreffend  (Gottingen,  1806)  does  not  take  an  independent  view  of  our  subject. 

2  Ueber  Nationalindustrie  und  Staatsunrthscha/t,  1800-1804  particularly  pp. 
82,  142. 

3  StaatsurirtfischMft,  Auerswald's  edition,  1808-11,  particularly  vol.  i.  pp.  24, 
150  ;  and  the  very  naive  expressions,  vol.  iii.  p.  126. 

*  Neue  Grundlegung,  Vienna,  1815,  p.  221. 

6  Die  National-Ockonomie,  Ulm,  1823,  p.  145.     See  also  p.  164,  where  the 
causal  connection  is  reversed  and  natural  interest  deduced  from  loan  interest. 

6  Staatsurisscnschaften  im  Lichte  unserer  Zcit,  part  ii.  Leipzig,  1823,  p.  90. 
Here  Politz  only  takes  the  trouble  to  show  that  profit,  assumed  as  already,  exist- 
ing, must  fall  to  the  owner  of  capital. 

7  Theorie  des  Handels,  Gottingen,  1831. 

8  Handbuch  der  Staatsrwirthschaft,  Berlin,  1808,  §§  110  and  120.  See  also  §  129, 
where  even  contract  "  rents "  are  no  better  explained,  but  simply  spoken  of  as 
facts.     Schmalz's  other  -writings  are  not  more  instructive. 

9  Die  Oekonomie  der  menschlichen  Gesellschaften  und  das  Finanzwesen,  Stutt- 
gart, 1845,  p.  19. 

G 


82  THE  COLOURLESS  THEORIES  BOOK  i 

complacency :  "  Why  capital  bears  interest,  in  the  form  of  a. 
definite  rate  per  cent  in  the  case  of  money  values,  in  the  form 
of  the  prices  of  commodities  in  the  case  of  real  capital,  has  been 
already  made  clear"  (p.  103). 

More  attention  is  due  to  certain  authors  who  give  a  stronger 
emphasis  to  Adam  Smith's  other  suggestion  that  profit  is  a  share 
in  the  product  of  labour  diverted  by  the  capitalist. 

One  of  these  writers,  Count  Soden,1  sharply  contrasts  capital, 
as  simple  material  on  which  "  productive  power  "  works,  with 
the  productive  power  itself.  He  traces  profit  to  the  fact  that 
the  owner  of  "  capital-material "  is  able  to  "  put  the  power  of 
others  in  motion  for  himself,  and  therefore  to  share  the  profit  on 
this  power  with  the  isolated  producer,  the  wage-earner  "  (vol.  i. 
p.  65).  That  some  such  sharing  does  take  place  Soden  regards 
as  a  self-evident  result  of  the  relations  of  competition.  With- 
out giving  himself  the  trouble  of  a  formal  explanation,  the 
expression  repeatedly  escapes  him  that  the  small  number  of 
the  capitalists,  as  compared  with  the  great  numbers  of  the 
wage-earners,  must  always  make  it  possible  for  the  capitalist  to 
buy  wage-labour  at  a  price  which  leaves  him  a  "  rent  "  (pp.  61, 
138).  He  thinks  this  quite  fair  (e.g.  p.  65,  onwards),  and 
consequently  gives  his  advice  against  attempting  to  raise  wages 
by  legal  regulation.  "  For  if,  in  the  price  thus  regulated,  the 
owner  of  the  material  comes  to  find  that  he  gets  no  profit  from 
the  power  of  others,  all  material  which  he  cannot  himself 
work  up  he  will  leave  dead  "  (p.  140).  Soden,  however,  wishes 
that  the  "  price  "  of  wages  should  be  brought  up  to  their  "  true 
value."  What  level  of  wage  it  is  that  corresponds  to  this  true 
value  remains  very  obscure,  in  spite  of  the  thorough  discussion 
which  the  author  devotes  to  the  question  of  the  value  of  the 
productive  power  (p.  132).  The  only  thing  certain  is  that, 
in  his  opinion,  even  when  the  productive  power  is  compen- 
sated at  its  full  value,  there  must  still  remain  a  rent  to  the 
capitalist. 

The  impression  one  gets  from  all  this  is,  that  the  first  part 
of  the  argument,  where  interest  is  explained  to  be  a  profit 
obtained  from  the  power  of  others,  would  lead  us  to  expect  a 
very  different  conclusion  from  that  come  to  in  the  second  part; 

1  Die  National-Ockonomie,  Leipzig,   1805-1808.      I   quote    from    a    reprint 
published  in  Vienna,  1815. 


CHAP,  v  SODEN—LOTZ  83 

and  that  the  reasons  given  for  this  change  of  front  are  much 
too  vague  to  be  satisfactory. 

Lotz  lays  himself  open  to  similar  criticism. 

This  acute  writer,  in  his  Handbuch  der  Staatswissenschafts- 
lehre,  Erlangen,  1821,  goes  very  exhaustively  into  the  subject 
of  interest.  He  argues  with  great  vigour  against  the  doctrine 
which  Say  had  meantime  put  forward,  that  capital  possesses  an 
independent  productive  power.  "  In  themselves  all  capitals  are 
dead,"  and  "  there  is  no  truth  in  the  assertion  of  their  independent 
labour":  they  are  never  anything  else  than  tools  of  human 
labour  (vol.  i.  p.  65,  etc.)  In  the  very  notable  passage  which 
follows,  the  "rent"  of  capital  is  criticised  from  this  point  of  view. 

Since  capitals  are  only  instruments  for  furthering  labour, 
and  themselves  do  no  labour,  Lotz  finds  that  the  capitalist 
"  from  the  return  to  labour,  and  from  the  amount  of  goods 
gained  or  produced  by  it,  has  no  claim  to  anything  more  than 
the  amount  of  expense  which  the  furnishing  of  the  capital 
has  caused  him ;  or,  more  plainly,  the  amount  of  the  labourer's 
subsistence,  the  amount  of  the  raw  material  given  out  to  him, 
and  the  amount  of  the  tools  properly  so  called  that  are  worn 
out  by  the  worker  during  his  work.  This,  strictly  speaking, 
would  be  distinctively  the  rent  appropriate  to  capital  which 
the  capitalist  may  claim  from  the  labourer  who  works  for 
him;  and  further,  this  is  distinctively  the  appropriate  quota 
of  the  quantity  of  goods  produced  by  the  labourer,  or  won 
from  nature,  that  might  belong  of  right  to  the  capitalist.  If 
this  then  be  the  appropriate  sense  of  the  term,  there  is  no 
place  for  what  is  usually  called  profit,  viz.  a  wage  obtained 
by  the  capitalist  for  advancing  his  capital  such  as  guarantees  a 
surplus  over  the  expenses.  If  labour  returns  more  than  the 
amount  of  the  capitalist's  expenditure,  this  return,  and  all  the 
income  that  comes  out  of  it,  belongs  distinctively  to  the 
labourer  alone,  as  wages  of  his  labour.  For  in  point  of  fact 
it  is  not  the  capitalist  who  creates  the  labourer's  products ; 
all  that  the  labourer,  with  the  assistance  of  capital,  may  pro- 
duce or  win  from  nature  belongs  to  himself.  Or  if  the  power 
which  manifests  its  activity  in  the  worker  at  his  work  be 
looked  upon  as  a  natural  fund  belonging  to  the  entire  industrial 
mass  of  mankind,  then  all  that  the  labourer  produces  belongs 
to  humanity  as  a  whole"  (p.  487,  onwards). 


84  THE  COLOURLESS  THEORIES  BOOK  i 

In  this  acute  and  remarkable  passage  Lotz  comes  very  near 
to  the  later  Exploitation  theory  of  the  socialists.  But  all  of  a 
sudden  he  breaks  away  from  this  line  of  argument,  and  swings 
back  into  the  old  colourless  explanation  of  Adam  Smith  by 
going  on  to  say :  "  If,  however,  the  capitalist  were  limited  to  a 
simple  replacement  of  what  he  may  have  furnished,  from  his 
accumulated  stock  of  wealth,  to  the  worker  during  his  work, 
and. for  his  work — if  the  capitalist  were  so  hardly  treated,  he 
would  scarcely  decide  to  advance  anything  from  his  stock  on 
behalf  of  the  worker  and  his  work.  He  would  perhaps  never 
decide  to  accumulate  capital  at  all ;  for  there  would  not  be 
many  capitals  accumulated  if  the  accumulator  had  not  the 
prospect  of  a  wage  for  the  trouble  of  this  accumulating  in  the 
shape  of  the  expected  interest.  If,  therefore,  the  worker,  who 
has  none  of  the  requisites  and  conditions  necessary  for  the 
exercise  of  his  power,  is  to  hope  and  expect  that  owners 
will  consent  to  furnish  their  capital,  and  so  make  it  possible 
for  him  to  exert  the  productive  power  that  resides  in  him, 
or  lighten  the  exertion  for  him,  then  he  must  of  necessity 
•  submit  to  give  up  to  the  capitalists  something  of  the  return  to 
his  labour." 

In  what  follows  Lotz  somewhat  expands  this  vague  explan- 
ation by  suggesting,  as  a  fair  ground  for  the  capitalist's  claim, 
that,  without  the  support  of  capital,  the  work  which  guarantees 
that  there  is  a  return  to  be  divided  could  never  have  been 
done  at  all  by  the  labourer,  or,  at  any  rate,  could  not  have 
been  so  well  done.  This  also  gives  him  a  standard  for  the 
"  true  and  appropriate  extent "  of  rent  of  capital ;  it  should 
be  calculated,  that  is  to  say,  in  proportion  to  the  support 
which  the  worker  has  enjoyed  at  his  work  by  the  use  of  the 
capital.  In  explaining  this  method  of  calculation  by  several 
examples  Lotz  shows  how  nearly  extremes  may  meet.  A  few 
pages  before,  he  has  said  that  the  whole  "return  to  labour, 
and  all  the  income  that  comes  out  of  it,  belongs  peculiarly 
to  the  labourer  alone,  as  wages  of  his  labour."  He  now  goes 
on  to  show  how  in  certain  circumstances  the  owner  of  a  labour- 
saving  machine  may  claim  for  himself,  and  that  rightly,  nine- 
tenths  of  the  return  to  labour ! 

It  is  easy  to  see  that  the  contrast  here  between  the  starting- 
point  and  the  conclusion  is  even  more  striking  than  it  is 


CHAP,  v  LOTZ  85 

with  Soden,  and  that  the  'argument  relied  on  to  explain  and 
connect  the  two  does  not  carry  much  more  weight  At  bottom 
it  says  nothing  else  than  that  the  capitalist  would  like  to  get 
interest,  and  that  the  workers  may  consent  to  its  deduction. 
But  how  far  this  "  explanation  "  is  from  being  really  a  theory 
of  interest  is  forcibly  illustrated  if  we  put  a  parallel  case  in 
regard  to  the  land -rent  problem.  Lotz's  explanation  does 
for  the  problem  of  interest  exactly  what  would  be  done  for 
the  problem  of  rent,  if  one  were  to  say  that  landowners  must 
obtain  a  rent,  because  otherwise  they  would  prefer  to  leave 
their  ground  uncultivated ;  and  that  it  is  a  fair  thing  for  the 
agricultural  labourers  to  consent  to  the  deduction  of  rent, 
because  without  the  co-operation  of  the  soil  they  could  not  get 
any  return  to  divide,  or  could  not  get  so  good  a  return.  Lotz, 
however,  evidently  never  suspected  that  the  essence  of  the 
problem  is  not  even  touched  by  any  such  explanation,1 

A  last  group  of  Colourless  writers  takes  a  hesitating  middle 
course  between  Adam  Smith's  views  and  the  Productivity 
theory  which  Say  had  meantime  put  forward.  They  take 
some  features  from  both,  but  do  not  expand  any  of  them  into 
a  complete  theory.  From  Say  these  authors  usually  take  the 
recognition  of  capital  as  an  independent  factor  in  production ; 
and  they  adopt  perhaps  one  or  other  of  Say's  ways  of  speaking 
that  suggest  the  "  productive  power  "  of  capital.  From  Adam 
Smith  they  take  the  appeal  to  the  motive  of  the  capitalist's 
self-interest.  But  one  and  all  of  them  avoid  any  precise  for- 
mulation of  the  interest  problem. 

In  this  group  we  find   Jakob,2  who  at  times  recognises 

1  In  Lotz's  former  work,  the  Revision  der  Qrundbeyriffe,  1811-14,  there  are 
some  rather  interesting  remarks  on  our  subject,  although  they  are  full  of  incon- 
sistency ;  among  others,  an  acute  refutation  of  the  productivity  theories  (vol.  iii. 
p.  100,  etc.),  au  explanation  of  interest  as  "an  arbitrary  addition  to  the  necessary 
costs  of  production,"  and  as  a  "tax  which  the  selfishness  of  the  capitalist  forces 
from  the  consumer  "  (p.  338).  This  tax  is  found,  not  necessary  indeed,  but  "  very 
fair."  At  p.  339  and  at  p.  323  Lotz  considers  it  a  direct  cheating  of  the  capitalist 
by  the  labourer  if  the  former  does  not  receive  in  interest  as  much  as  "  he  may  be 
justified  in  claimiug  as  the  effect  of  those  tools  used  up  by  the  worker  on  his 
activity  and  on  its  gross  return."  It  is  very  striking  that  in  the  second  last  of 
the  passages  quoted  Lotz  puts  interest  to  the  account  of  the  consumer,  and  in 
the  last  of  them  to  the  account  of  the  labourer  ;  he  thus  exactly  repeats  Adam 
Smith's  indecision  on  the  same  point. 

a  Grundsatze  der  National-Oekonomie,  Halle,  1805  ;  third  edition,  Halle,  1825. 
I  quote  from  the  latter. 


86  THE  COLOURLESS  THEORIES  HOOK  i 

as  the  ultimate  source  of  all  usefifl  things  only  nature  and 
industrial  activity  (§  49),  and  traces  the  profit  of  capital  to  a 
capability  on  the  part  of  labour  to  produce  a  surplus  product 
(§§  275,  280) ;  but  at  other  times  points  to  profit  as  that  "  which 
is  produced  by  a  capital  over  its  own  value"  (§  277),  designates 
capital  by  Say's  term  of  "productive  instrument"  (§  770),  and 
often  speaks  of  the  owners  of  capital  as  immediate  producers, 
who  are  called  to  take  part  in  the  original  division  of  the  product 
in  virtue  of  the  direct  share  which  they  have  taken  in  the  pro- 
duction of  goods  by  contributing  their  capital.1  Then  we  have 
Fulda,2  who  looks  upon  capital  as  a  special  though  derived  source 
of  wealth,  and,  moreover,  likens  it  to  a  machine  which  when 
properly  employed  not  only  pays  for  its  own  upkeep,  but 
makes  something  more  in  addition ;  he  does  not  attempt, 
however,  to  give  any  explanation  of  this  (p.  135).  Then 
comes  Eiselen,3  whose  want  of  clearness  at  once  comes  out 
in  his  first  recognising  only  two  ultimate  sources  of  wealth, 
nature  and  labour  (p.  11),  and  then  later  looking  upon  nature, 
labour,  and  capital  as  "  fundamental  powers  of  production," 
from  the  co-operation  of  which  the  value  of  all  products  pro- 
ceeds (§  372).  Eiselen,  moreover,  finds  that  the  function  of 
capital  is  to  increase  the  return  to  labour  and  natural  powers 
(§497  and  other  places) ;  but  in  the  end  he  can  find  nothing 
better  to  say  in  explanation  of  interest  than  that  interest  is 
necessary  as  an  incentive  to  the  accumulation  of  capital  (§491; 
similarly  §§  517,  555,  etc.) 

Besides  these  we  meet  in  the  same  group  the  gallant  old 
master  in  political  economy,  Eau.  It  is  singular  that  Rau,  to 
the  very  end  of  his  long  scientific  career,  ignored  the  imposing 
number  of  distinct  theories  on  interest  which  he  saw  springing 
up,  and  held  by  the  simple  way  of  explanation  that  had  been 
customary  in  the  days  of  his  youth.  Even  in  the  eighth  and 
last  edition  of  his  Volkswirthschaftslehre,  which  appeared  in 
1868,  lie  contented  himself  with  touching  on  the  interest 
problem  in  a  few  cursory  remarks,  containing  in  substance  the 
old  self-interest  motive  introduced  by  Adam  Smith.  "  If  he 
(the  capitalist)  is  to  resolve  to  save  wealth,  accumulate  it,  and 

1  §§  211,  711,  765,  particularly  marked  in  §  769. 

3  Grundsdtze  dcr  okonomisch-politischen  odcr  Kamcralwisscnschaften,  second 
edition,  Tubingen,  1820. 

3  Die  Lchre  von  der  Volkswirthsclutft,  Halle,  1843. 


CHAP,  v  RAU—RICARDO  87 

make  it  into  capital,  he  must  get  an  advantage  of  another  sort ; 
viz.  a  yearly  income  lasting  as  long  as  his  capital  lasts.  In  this 
way  the  possession  of  a  capital  becomes  to  individuals  .  .  . 
the  source  of  an  income  which  is  called  rent  of  capital,  rent 
of  stock,  or  interest."  * 

On  Rau's  works  the  rich  development  which  the  literature 
of  interest  had  taken  before  1868  has  scarcely  left  a  trace. 
Of  Say's  Productivity  theory  he  has  only  adopted  this  much ; 
•that,  like  Say,  he  recognises  capital  to  be  an  independent  source 
of  wealth;  but  he  immediately  weakens  this  concession  by 
rejecting  as  inappropriate  the  expression  "  productive  service," 
which  Say  used  for  the  co-operation  of  this  source  of  wealth, 
and  by  putting  capital  among  "dead  auxiliaries,"  in  contrast  to  the 
producing  forces  of  wealth  (vol.  i.  §  84).  And  on  one  occasion, 
'  in  a  note,  he  quotes  Senior's  Abstinence  theory,  but  without  adding 
a  single  word  either  of  agreement  or  criticism  (vol.  i.  §  228). 

When  we  turn  from  Germany  to  England  our  attention  is 
first  claimed  by  Ricardo. 

In  the  case  of  this  distinguished  thinker  we  find  the  same 
phenomenon  we  have  already  noticed  in  the  case  of  Adam  Smith, 
that,  without  putting  forward  any  theory  of  his  own,  he  has  had  a 
deep  influence  on  the  development  of  the  interest  theory.  I  must 
classify  him  among  the  Colourless  writers,  for  although  he  takes 
up  the  subject  of  interest  at  some  length,  he  treats  it  only  as  a 
self-explanatory,  or  almost  self-explanatory  phenomenon,  and 
passes  over  its  origin  in  a  few  cursory  remarks,  to  take  up  at 
.greater  length  a  number  of  concrete  questions  of  detail  And 
although  he  treats  these  questions  most  thoroughly  and  intelli- 
gently, it  is  in  such  a  way  that  their  investigation  throws  no 
light  on  the  primary  theoretical  question.  But,  exactly  as  in 
the  case  of  Adam  Smith,  his  doctrine  contains  propositions  on 
which  distinct  theories  could  have  been  built,  if  only  they  had 
been  worked  out  to  all  their  conclusions.  In  fact,  later  on, 
distinct  theories  were  built  on  them,  and  not  the  least  part  of 
their  support  consists  in  the  authority  of  Ricardo,  to  whom 
the  advocates  of  these  theories  were  fond  of  appealing  as  their 
spiritual  father. 

The  passages  in  which  Ricardo  makes  reference  to  interest 
1  Volkswirthschaftslehre,  vol.  i.  §  222.  Similarly,  but  more  generally,  vol.  i.  §  138. 


88  THE  COLOURLESS  THEORIES  BOOK  i 

are  very  numerous.  Apart  from  scattered  observations,  they 
are  to  be  found  principally  in  chapters  i.  vi.  vii.  and  xxi.  of  his 
Principles  of  Political  Economy  and  Taxation.1  The  contents 
of  these  passages,  so  far  as  they  refer  to  our  subject,  may  best 
be  ascertained  if  we  divide  them  into  three  groups.  In  the 
first  group  I  shall  place  Eicardo's  direct  observations  on  the 
origin  of  interest ;  in  the  second,  his  views  on  the  causes  that 
determine  its  amount ;  in  the  third,  his  views  on  the  connec- 
tion of  interest  with  the  value  of  goods.  It  should  be  pre- 
mised, however,  that  Kicardo,  like  the  majority  of  English 
writers,  makes  no  distinction  between  interest  on  capital  and 
undertaker's  profit,  but  groups  both  under  the  word  Profit. 

(1)  The  first  group  is  very  thinly  represented.  It  con- 
tains a  few  passing  remarks  to  the  effect  that  there  must  be 
interest,  because  otherwise  capitalists  would  have  no  induce- 
ment to  accumulate  capital.2  These  remarks  have  an  evident 
connection  with  the  analogous  expressions  of  Adam  Smith, 
with  which  we  are  familiar,  and  come  under  the  same  criticism. 
There  is  some  warrant  for  seeing  in  them  the  primary  germs 
from  which  the  Abstinence  theory  has  since  been  developed, 
^\  but  in  themselves  they  do  not  represent  a  theory. 

The  same  remark  is  true  of  another  observation.  In 
chap.  i.  §  p,  p.  25,  he  says  that,  where  production  demands  an 
employment  of  capital  for  a  longer  period,  the  value  of  the 
goods  produced  must  be  greater  than  the  value  of  goods  which 
have  required  exactly  the  same  amount  of  labour,  but  where  the 
employment  of  capital  has  extended  over  a  shorter  period ;  and 
concludes  :  "  The  difference  in  value  is  only  a  just  compensation 
for  the  time  that  the  profits  were  withheld."  One  might 
possibly  find  in  these  words  a  still  more  direct  agreement 

1  London,   1817,   third  edition,   1821.     I  quote  from  M'Culloch's  edition. 
John  Murray,  1886. 

2  The  most  complete  of  these  runs  thus  :  ' '  For  no  one  accumulates  but  with 
a  view  to  make  his  accumulation  productive,  and  it  is  only  when  so  employed 
that  it  operates  on  profits.    Without  a  motive  there  could  be  no  accumulation,  and 
consequently  such  a  state  of  prices"  (as  show  no  profit  to  the  capitalist)  "could 
never  take  place.     The  farmer  and  manufacturer  can  no  more  live  without  profit 
than  the  labourer  without  wages.     Their  motive  for  accumulation  will  diminish 
with  every  diminution  of  profit,  and  will  cease  altogether  when  their  profits  are 
so  low  as  not  to  afford  them  an  adequate  compensation  for  their  trouble,  and  the 
risk  which  they  must  necessarily  encounter  in  employing  their  capital  produc- 
tively "  (chap.  vi.  p.  68  ;  similarly  p.  67  ;  chap.  xxi.  p.  175,  and  other  places). 


CHAP,  v  RICARDO  89 

with  the  Abstinence  theory,  but  in  themselves  they  do  not 
contain  any  finished  theory. 

(2)  On  the  amount  or  rate  of  profit  Eicardo's  views  (prin- 
cipally contained  in  chapters  VL  and  XXL)  are  very  interesting 
both  as  regards  originality  and  self-consistency.  As  they  arise 
out  of  his  theory  of  land -rent,  it  will  be  necessary  to  give 
some  account  of  that  theory. 

According  to  Ricardo,  on  the  first  settling  of  a  country  the 
most  fruitful  lands  are  taken  into  cultivation.  So  long  as 
there  is  a  superfluity  of  land  of  the  "  first  quality  "  no  rent  is 
paid  to  the  owner  of  the  ground,  and  the  whole  revenue  falls 
to  the  cultivators  as  wages  of  labour  and  profit  of  capital 

Later  on,  as  population  increases,  the  increasing  demand 
for  land  products  demands  extended  cultivation.  This  ex- 
tended cultivation  is  of  two  kinds :  sometimes  the  lands  of 
inferior  quality,  despised  up  till  now,  are  cultivated ;  sometimes 
the  lands  of  first  quality  already  in  cultivation  are  cultivated 
with  more  intensiveness — farmed  at  a  greater  expenditure  of 
capital  and  labour.  In  both  cases — assuming  that  the  state 
of  agricultural  technique  remains  unchanged — the  increase  in 
land  products  is  only  obtained  at  increased  cost ;  and  the  last 
employed  capital  and  labour  are  consequently  less  productive — 
less  productive,  that  is  to  say,  over  the  whole  field,  as  the  more 
favourable  opportunities  of  cultivation  are  successively  ex- 
hausted, and  the  less  favourable  must  be  resorted  to. 

The  capitals  thus  employed  in  circumstances  unequally 
favourable  obtain  at  first  unequal  results.  But  these  unequal 
results  cannot  permanently  remain  attached  to  particular 
capitals.  The  competition  of  capitalists  will  soon  bring  the  rate 
of  profit  on  all  capitals  engaged  in  agriculture  to  the  same 
level.  The  standard,  indeed,  is  given  by  the  profit  obtainable 
in  the  least  remunerative  employment  of  capital.  All  surplus 
return  which  the  more  favourably  situated  capitals  yield  in 
virtue  of  the  better  quality  of  the  co-operating  powers  of  the 
soil,  falls  into  the  lap  of  the  landowners  as  rent 

The  extent  of  profit  and  wage  taken  together  is  thus 
always  determined  by  the  return  to  the  least  productive  em- 
ployment of  capital;  for  this  return  pays  no  rent,  and  is 
divided  entirely  as  profit  on  capital  and  wage  of  labour. 

Now  of  these  two  factors  one,  the  wage  of  labour,  follows 


90  THE  COLOURLESS  THEORIES  HOOK  i 

a  hard  and  fast  law.  Wages  are  necessarily  at  all  times  equal 
to  the  -amount  of  the  necessary  cost  of  subsistence  of  the 
worker.  They  are  high  if  the  value  of  the  means  of  subsist- 
ence be  high ;  low  if  the  value  of  the  means  of  subsistence 
be  low.  As  then  the  capitalist  receives  what  remains  over, 
profit  finds  the  line  that  determines  its  height  in  the  height  of 
wages  at  the  time.  In  this  connection  between  interest  and 
wage  Bicardo  finds  the  true  law  of  interest.  He  brings  it 
forward  with  emphasis  in  a  great  many  passages,  and  opposes 
it  to  the  older  view,  particularly  to  that  represented  by  Adam 
Smith,  that  the  extent  of  profit  is  determined  by  the  amount 
and  competition  of  capitals. 

In  virtue  of  this  law,  Bicardo  now  goes  on  to  argue,  profit 
must  tend  to  sink  steadily  with  increasing  economic  cultiva- 
tion. For  in  order  to  obtain  means  of  subsistence  for  the 
increasing  population,  man  must  resort  to  conditions  of  cultiva- 
tion that  are  always  more  and  more  unfavourable,  and  the 
decreasing  product,  after  deduction  of  the  wages  of  labour, 
leaves  always  less  and  less  for  profit.  True,  although  the 
amount  of  the  product  diminishes,  its  value  does  not  fall. 
For,  according  to  Bicardo's  well-known  law,  the  value  of 
products  is  at  all  times  regulated  by  the  quantity  of  labour 
employed  in  their  production.  Therefore  if,  at  a  later  point 
of  time,  the  labour  of  ten  men  brings  forward  only  150  quarters 
of  corn,  while  at  an  earlier  period  it  had  brought  forward  180, 
the  150  quarters  will  now  have  exactly  the  same  value  as  the 
180  before  had,  because  in  both  is  embodied  the  same 
quantity  of  labour — that  is,  the  labour  of  ten  men  over  a  year. 
But  now  of  course  the  value  of  the  single  quarter  of  wheat 
will  rise.  With  it  necessarily  rises  the  amount  of  value  which 
the  worker  requires  for  his.  subsistence,  and,  as  a  further  result, 
his  wages  must  also  rise.  But  if,  for  the  same  amount  of  value 
which  the  lessened  quantity  of  product  represents,  a  higher 
wage  must  be  paid  to  labour,  there  naturally  remains  over  a 
less  amount  for  profit. 

Were  man  finally  to  extend  cultivation  to  lands  so  un- 
fruitful that  the  product  obtainable  was  entirely  required  for 
the  labourers'  subsistence,  profit  would  fall  to  zero.  That 
is,  however,  impossible,  because  the  expectation  of  profit  is  the 
one  motive  to  the  accumulation  of  capital,  and  this  motive 


CHAP,  v  RICARDO  91 

becomes  weakened  with  the  gradual  lowering  of  profit ;  so 
that,  before  zero  is  reached,  the  further  accumulation  of 
capital,  and  with  it  the  advance  of  wealth  and  of  population, 
would  come  to  a  standstill. 

The  competition  of  capitalists,  on  which  Adam  Smith  lays 
so  much  weight,  can,  according  to  Eicardo,  only  temporarily 
lower  the  profit  of  capital,  when  (in  accordance  with  the  well- 
known  wage  fund  theory)  the  increased  quantity  of  capital 
at  first  raises  wages.  But  very  soon  the  labouring  population 
increases  in  proportion  to  the  increased  demand  for  labour,  and 
wages  tend  to  sink  to  the  former  level  while  profit  tends  to 
rise.  The  only  thing  that  will  finally  reduce  profit  is  when  the 
means  of  support  necessary  for  the  increased  population  can  be 
obtained  only  by  the  cultivation  of  less  productive  lands  and 
at  increased  cost;  and  when,  in  consequence,  the  diminished 
product  leaves  a  smaller  surplus  after  paying  the  necessary 
wages  of  labour.  This  will  not  be  in  consequence  of  com- 
petition, but  in  consequence  of  the  necessity  of  having  recourse 
to  less  fruitful  production.  Only  from  time  to  time  does  the 
tendency  of  profit  to  sink  with  progressive  economical  develop- 
ment experience  a  check  through  improvements  in  agricultural 
technique,  which  allow  of  equal  quantities  of  product  being 
obtained  with  less  labour  than  before. 

If  we  take  the  substance  of  this  theory  we  find  that 
Eicardo  explains  the  rate  of  profit  from  the  rate  of  wages ;  the 
rate  of  wages  is  the  cause,  the  rate  of  profit  the  effect.1 

Criticism  may  approach  this  theory  from  different  sides. 
It  has,  it  need  scarcely  be  said,  no  validity  whatever  for  those 
who,  like  Pierstorff,  hold  Ricardo's  rent  theory  to  be  fundament- 
ally untrue.  Further,  that  portion  of  the  argument  which  rests 
on  the  wage  fund  theory  will  be  exposed  to  all  the  objections 
raised  to  that  theory.  I  shall  put  on  one  side,  however,  all 
those  objections  which  relate  to  assumptions  outside  the  in- 
terest theory,  and  direct  my  criticism  simply  to  the  theory  itself. 

1  Ricardo  puts  the  same  causal  relation  very  strongly  in  chap.  i.  §  4, 
when  he  gives  the  height  of  the  "value  of  labour"  as  a  secondary  cause  of  the 
value  of  goods,  in  addition  to  the  quantity  of  labour  expended  in  the  production, — 
having  in  his  eye  the  influence  exerted  on  the  value  of  goods  by  the  capitalist's 
claims  to  profit.  The  height  of  profit  is  to  him  only  a  dependent,  secondary 
cause,  in  place  of  which  he  prefers  to  put  the  final  cause  of  the  whole  relation, 
and  this  final  cause  he  finds  in  the  varying  height  of  wages. 


92  THE  COLOURLESS  THEORIES  BOOK  i 

I  ask,  therefore,  Assuming  the  correctness  of  the  rent 
theory  and  of  the  wage  fund  theory,  is  the  rate  of  profit,  or, 
for  that  matter,  the  existence  of  profit,  explained  by  Eicardo's 
theory  ? 

The  answer  will  be  in  the  negative,  and  that  because 
Eicardo  has  mistaken  what  are  simply  accompanying  circum- 
stances of  the  phenomenon  for  its  cause.  The  matter  stands 
thus. 

It  is  quite  right  to  say  that  wage,  profit,  and  return  of 
production  do,  after  deduction  of  possible  land -rent,  stand 
in  an  iron  connection.  It  is  quite  right  to  say  that  the  profit 
of  capital  can  never  amount  to  more,  and  never  to  less,  than 
the  difference  between  return  and  wage.  But  it  is  false  to 
interpret  this  connection  as  implying  that  the  amount  of  the 
return  and  the  amount  of  the  wage  are  the  determining,  and 
the  amount  of  profit  simply  the  determined.  Just  as  plausibly 
as  Eicardo  has  explained  the  rate  of  profit  as  a  result  of  the 
rate  of  wages  might  he  have  explained  the  rate  of  wages 
as  a  result  of  the  rate  of  profit.  He  has  not  done  so  because 
he  rightly  recognised  that  the  rate  of  wages  rests  on  inde- 
pendent grounds,  and  grounds  peculiar  to  the  factor,  labour. 
But  what  Eicardo  recognised  in  the  case  of  wages  he  has 
overlooked  in  the  case  of  profit.  Profit,  too,  has  grounds  that 
determine  its  amount  arising  out  of  circumstances  peculiar  to 
itself.  Capital  does  not  simply  take  what  remains  over ;  it 
knows  how  to  exact  its  own  proper  share.  Now  an  efficient 
explanation  of  profit  would  have  to  bring  into  prominence 
just  those  considerations  that  appear  on  the  side  of  the  factor 
"  capital,"  and  prevent  the  absorption  of  profit  by  wages  just 
as  effectually  as,  e.g.  the  labourer's  necessary  subsistence 
prevents  the  absorption  of  wages  by  interest.  But  Eicardo 
entirely  fails  to  give  this  prominence  to  the  specific  grounds 
that  determine  the  rate  of  interest. 

Only  once  does  he  notice  the  existence  of  any  such 
grounds,  when  he  remarks  that  profit  can  never  sink  to  zero, 
because,  if  it  did  so,  the  motive  for  the  accumulation  of  capital, 
and  with  it  the  accumulation  of  capital  itself,  would  come  to  an 
end.1  But  this  thought,  which,  logically  expanded,  might  have 
afforded  material  for  a  really  original  theory  of  interest,  he 

1  Chap.  vi.  p.  67  and  passim. 


CHAP,  v  RICARDO  93 

does  not  follow  up.  He  continues  to  look  for  the  circumstances 
that  determine  the  rate  of  profit  exclusively  in  the  field  of  the 
competing  factors  ;  and  he  assiduously  points  out,  as  its  decisive 
causes,  sometimes  the  rate  of  wages,  sometimes  the  degree  of 
productivity  of  the  most  unproductive  labour,  sometimes  even 
— in  a  way  that  breathes  of  the  physiocrat,  but  still  is  in 
harmony  with  the  whole  doctrine  just  expounded — the  natural 
fruitfulness  of  the  soil.1 

This  criticism  of  Eicardo  appears  of  course  to  be  itself 
exposed  to  a  very  obvious  objection.  If,  as  we  have  assumed 
with  Eicardo  in  the  whole  course  of  our  argument,  wage 
claims  for  itself  an  absolutely  determined  quantity, — the  amount 
of  the  costs  of  subsistence,  it  appears  as  if,  at  the  same  time, 
the  amount  which  remains  over  for  profit  is  so  strictly  deter- 
mined that  there  is  no  room  for  the  working  of  any  inde- 
pendent motives  on  the  side  of  profit.  Say,  e.g.  that  the 
return  to  production  ready  for  division  is  100  quarters.  If 
the  workers  occupied  in  producing  these  100  quarters  require 
80  quarters,  the  share  of  capital  is  certainly  fixed  at  20 
quarters,  and  could  not  be  altered  by  any  motive  acting  from 
the  side  of  capital. 

This  objection,  which  is  conceivable,  will  not,  however, 
stand  examination.  'For,  to  keep  entirely  to  Eicardo's  line  of 
thought,  the  return  which  the  least  productive  labour  yields 
is  not  fixed  but  elastic,  and  is  capable  of  being  affected  by 
any  peremptory  claims  of  capital  and  of  labour.  Just  as 
effectually  as  the  claims  of  the  worker  may  and  do  prevent 
cultivation  being  extended  to  a  point  at  which  labour  does  not 
obtain  even  its  own  costs  of  subsistence,  may  the  claims  of 
capital  prevent  an  excessive  extension  of  the  limits  of  culti- 
vation, and  actually  do  prevent  it.  For  instance,  suppose 
that  these  motives  to  which  interest,  generally  speaking,  owes 
its  origin,  and  which  Eicardo  unfortunately  does  so  little  to 
explain,  demand  for  a  capital  of  definite  amount  a  profit  of 
30  quarters,  and  that  the  workers  employed  by  this  capital 
need  for  their  subsistence  in  all  80  quarters;  then  cultivation 
will  require  to  call  a  halt  at  that  point  where  the  labour  of  so 
many  men  as  can  live  on  80  quarters  produces  110  quarters. 
Were  the  "  motives  of  accumulation  "  to  demand  only  a  profit 

1  Cbap.  vi.  towards  end,  p.  70. 


94  THE  COLOURLESS  THEORIES  BOOK  i 

of  10  quarters,  then  cultivation  could  be  extended  till  such 
time  as  the  least  productive  labour  would  produce  90  quarters. 
But  the  cultivation  of  land  less  productive  than  this  will 
always  be  economically  impossible,  and  at  the  same  time  the 
limit  to  the  further  increase  of  population  will  be  for  the 
moment  reached.1 

That  the  claims  of  capital  may  exert  this  limiting  influence 
Eicardo  himself  allows,  as  we  have  seen,  in  the  very  extreme 
case  where  profit  threatens  to  disappear  altogether.  But 
naturally  those  circumstances  to  which  capital  owes  its  ex- 
istence in  general  put  forth  their  energies  not  only  in  the  very 
extreme  cases,  but  permanently.  They  do  not  simply  prevent 
the  entire  disappearance  of  profit ;  they  keep  it  constantly  in 
competition  with  the  other  factors,  and  help  to  determine  its 
amount.  So  that  profit  no  less  than  wages  may  be  said  to 
rest  on  independent  determining  grounds.  To  have  entirely 
ignored  these  grounds  is  the  decisive  blunder  of  Ricardo. 

The  peculiar  nature  of  this  blunder  explains  also  quite 
naturally  the  phenomenon  that  otherwise  would  be  very 
striking ;  that  the  comprehensive  investigations,  which  so 
distinguished  a  thinker  as  Eicardo  devoted  to  the  question  of 
the  rate  of  profit,  remain  so  entirely  unfruitful  as  regards  the 
principal  question,  the  causes  of  profit. 

(3)  Finally,  a  third  group  of  observations  relating  to  profit 
is  interwoven  with  Eicardo's  views  on  the  value  of  goods.  This 
is  a  subject  which  generally  gives  its  writers  opportunity  to 
express  themselves  directly  or  indirectly  as  to  the  source 
whence  profit  comes.  Does  the  capitalist's  claim  of  profit 
make  the  exchange  value  of  goods  higher  than  it  would  other- 
wise have  been,  or  not  ?  If  it  does,  profit  is  paid  out  of  a  special 
"  surplus  value,"  without  taking  anything  from  those  who  own 
the  co-operating  productive  powers;  in  particular,  without 
taking  anything  from  the  wage- worker.  If  not,  it  is  got  at  the 

1  The  careful  reader  will  easily  convince  himself  that  the  result  remains 
the  same,  if  we  vary  the  form  of  the  question,  and  look  at  the  value  instead 
of  the  amount  of  the  product  and  wages.  In  that  case,  indeed,  the  value  of  the 
return  remains  fixed  (see  p.  90),  while  wages  are  an  elastic  quantity,  and  the 
proposition  expressed  in  the  text,  changed  only  in  expression,  not  in  reality,  will 
run  thus :  cultivation  must  call  a  halt  at  that  point  where  the  wages  of 
labour,  increased  by  the  increasing  costs  of  cultivation,  leaves  over  to  the 
capitalist  from  the  value  of  the  product  no  more  than  enough  to  satisfy  his 
claims  on  profit. 


CHAP,  v  RICARDO  95 

expense  of  the  other  participants.  On  this  Ricardo  also  has 
expressed  himself,  and  his  opinion  is  that  an  addition  is  made 
to  the  value  of  goods  by  the  employment  of  capital ;  still  he 
expresses  himself  in  a  somewhat  cautious  way. 

He  distinguishes  between  two  different  epochs  of  history. 
In  the  first,  the  primitive  epoch — when  there  is  very  little 
capital  and  no  private  property  in  land — the  exchange  value 
of  goods  is  exclusively  determined  by  the  quantity  of  labour 
expended  on  them.1  In  the  second  epoch,  to  which  modern 
economy  belongs,  there  emerges  a  modification  through  the 
employment  of  capital.  The  undertaker -capitalists  ask,  for 
the  capital  employed  by  them  in  production,  the  usual  rate  of 
profit,  calculated  according  to  the  amount  of  the  capital  and  the 
length  of  time  during  which  it  is  employed.  But  the  amount 
of  capital  and  the  duration  of  its  employment  are  different  in 
the  different  branches  of  production,  and  the  claims  of  profit 
differ  with  them.  One  branch  requires  more  circulating 
capital,  which  quickly  reproduces  itself  in  the  value  of  the 
product ;  another  requires  more  fixed  capital,  and  this  again  of 
greater  or  less  durability, — the  rapidity  of  the  reproduction  in 
the  value  of  the  products  being  in  inverse  ratio  to  the  dura- 
bility. Now  the  various  claims  of  profit  are  equalised  by  the 
fact  that  those  goods  the  production  of  which  has  required 
a  comparatively  greater  share  in  capital,  obtain  a  relatively 
higher  exchange  value.2 

In  this  passage  one  can  see  that  Kicardo  decidedly  inclines 
to  the  view  that  interest  arises  out  of  a  special  surplus  value. 
But  the  impression  we  get  that  Ricardo  held  this  decided 
opinion  is  not  a  little  weakened  by  certain  other  passages ; 
partly  by  the  numerous  passages  where  Ricardo  brings  profit 
and  wages  into  connection,  and  makes  the  increase  of  one 
factor  come  out  of  the  loss  or  curtailment  of  the  other ;  partly 
by  the  previous  pure  "  labour  principle "  of  the  primitive 
epoch  of  industry,  which  is  inconsistent  with  that  view.  It 
must  be  said  too  that  he  is  much  more  interested  and  cordial 
in  his  exposition  of  this  latter  principle  than  in  that  of  its 
capitalist  modification ;  a  circumstance  which  cannot  but 
arouse  the  suspicion  that  he  considered  the  original  state  of 
things  the  natural  one.  In  fact,  the  later  socialist  writers 
1  Chap,  i  §  1.  a  Chap.  i.  §§  4,  5. 


96  THE  COLOURLESS  THEORIES  BOOK  i 

have  represented  the  "  labour  principle "  as  Ricardo's  real 
opinion,  and  the  capitalist  modification  which  he  conceded 
as  simply  an  illogical  conclusion.1 

Thus  also  on  the  question  whence  profit  comes  we  see 
Ricardo  take  an  undecided  position ;  not  hesitating  so  markedly 
as  his  master,  Adam  Smith,  but  undecided  enough  to  warrant 
his  retention  in  the  ranks  of  the  Colourless  theorists. 

Ricardo's  great  contemporary,  Malthus,  has  not  expressed 
himself  much  more  distinctly  than  Ricardo  on  the  subject  of 
interest.  Yet  there  are  certain  expressions  in  his  writings 
which  allow  us  to  separate  him  from  the  entirely  Colourless 
writers,  and  class  him  among  the  Productivity  theorists. 

The  epithet  colourless  applies,  however,  with  peculiar 
appropriateness  to  Torrens.2  This  diffuse  and  short -sighted 
writer  brings  forward  his  views  on  the  subject  of  interest 
for  the  most  part  in  the  course  of  an  argument  against  the 
theory  which  Malthus  had  promulgated  shortly  before,  that 
profit  forms  a  Constituent  portion  of  the  costs  of  production, 
and  therefore  of  the  natural  price  of  goods.  In  opposition  to 
this  Torrens,  with  perfect  correctness,  but  at  intolerable  length, 
points  out  that  profit  represents  a  surplus  over  costs,  not  a  part 
of  costs.  He  himself,  however,  has  nothing  better  to  put  in 
place  of  Malthus's  theory. 

He  makes  a  distinction  between  Market  price  and  Natural 
price.  Natural  price  is  "  that  which  we  must  give  in  order  to 
obtain  the  article  we  want  from  the  great  warehouse  of  nature, 
and  is  the  same  thing  as  the  cost  of  production"  (p.  50) ;  by 
which  expression  Torrens  means  "  the  amount  of  capital,  or  the 
quantity  of  accumulated  labour  expended  in  production"  (p.  34). 
Market  price  and  natural  price  in  no  way  tend,  as  is  usually 
affirmed,  to  a  common  leveL  For  profit  never  makes  any  part 
of  the  expense  of  production,  and  is  not  therefore  an  element 
of  natural  price.  But  "  market  price  must  always  include  the 
customary  rate  of  profit  for  the  time  being,  otherwise  industry' 
would  be  suspended.  Hence  market  price,  instead  of  equalising 
itself  with  natural  price,  will  exceed  it  by  the  customary  rate 
of  profit." 

1  So  also  Bernhardi,  Kritik  der  Griinde,  etc.,  1849,  p.  310,  etc. 
2  An  Essay  on  the  Production  of  Wealth,  London,  1821. 


CHAP,  v  TORRENS  97 

Torrens  has  thus  eliminated  profit  from  the  determinants 
of  natural  price,  and  put  it  instead  among  the  determinants  of 
market  price.  This  change,  it  is  easy  to  see,  is  purely  formal. 
It  rests  simply  on  the  use  of  a  different  terminology.  The 
economists  whom  he  attacked  had  meant  that  profit  is  a 
determinant  of  the  height  of  the  average  price  of  goods, 
and  had  called  this  average  or  permanent  price  "natural 
price."  Torrens  means  exactly  the  same  thing ;  only  he  calls 
the  permanent  price  the  "market  price,"  and  reserves  the 
name  of  natural  price  for  what  is  not  a  price  at  all,  namely, 
the  capital  expended  in  production. 

As  to  what  really  is  the  chief  question — Why  the  actual 
prices  of  goods,  whether  they  are  called  natural  or  market 
prices,  leave  over  a  profit  to  capital? — Torrens  has  almost  nothing 
to  say.  He  evidently  considers  profit  to  be  a  thing  so  self- 
explanatory  that  any  detailed  explanation  of  it  is  quite  un- 
necessary. He  contents  himself  with  a  few  unsatisfactory 
formulas, — formulas,  moreover,  which  contradict  each  other, 
as  they  point  to  lines  of  thought  that  are  entirely  distinct. 
One  of  these  formulas  is  the  often  recurring  observation  that 
the  capitalist  must  make  a  profit,  otherwise  he  would  have 
no  inducement  to  accumulate  capital,  or  lay  it  out  in  any 
productive  undertaking  (pp.  53,  392).  Another,  pointing  in 
quite  a  different  direction,  is  that  profit  is  a  "  new  creation " 
produced  by  the  employment  of  capital  (pp.  51,  54).  But 
how  it  is  created  we  are  not  told ;  he  gives  us  a  formula,  not 
a  theory. 

But  no  member  of  the  English  school  has  been  so  un- 
happy in  his  treatment  of  the  subject,  and  has  done  such  ill 
service  to  the  theory  of  interest,  as  M'Culloch.1  He  comes 
near  quite  a  number  of  diverging  opinions,  but  only  gets  deep 
enough  in  them  to  fall  into  flagrant,  self-contradiction ;  he  does 
not  expand  any  one  of  them  sufficiently  to  form  a  theory  that 
even  approaches  consistency.  We  find  only  one  exception  to 
this ;  but  the  theory  which  is  there  advanced  is  the  most  absurd 
that  could  possibly  occur  to  any  thinker.  Even  this,  however, 
in  later  editions  of  his  work  he  abandons,  although  not  without 
allowing  traces  of  it  to  remain  and  contrast  equally  with  facts 

1  Principles  of  Political  Economy,  first  edition,  Edinburgh,  1825;  fifth  edition 
1864. 

H 


98  THE  COLOURLESS  THEORIES  BOOK  i 

and  with  the  context.  Thus  M'Culloch's  utterances  on  the 
subject  are  one  great  collection  of  incompleteness,  irrationality, 
and  inconsistency. 

Since,  however,  M'Culloch's  views  have  obtained  extensive 
circulation,  and  command  a  certain  respect,  I  cannot  shirk 
the  somewhat  thankless  task  of  justifying  these  strictures. 

M'Culloch  starts  with  the  proposition  that  labour  is  the 
only  source  of  wealth.  The  value  of  goods  is  determined  by 
the  quantity  of  labour  required  for  their  production.  This  he 
considers  true  not  only  of  primitive  conditions,  but  also  of 
modern  economic  life,  where  capital,  as  well  as  direct  labour, 
is  employed  in  production ;  for  capital  itself  is  nothing  else 
than  the  product  of  previous  labour.  It  is  only  necessary  to 
add  to  the  labour  which  is  embedded  in  the  capital  the  labour 
immediately  expended,  and  the  sum  of  these  determines  the 
value  of  all  products.1  Consequently  it  is  labour  alone,  even 
in  modern  economic  life,  which  constitutes  the  entire  cost  of 
production.2 

But  only  a  few  lines  before  this  definition  of  costs  as 
"  identical  with  the  quantity  of  labour,"  M'Culloch  has  in- 
cluded profit,  as  well  as  labour,  among  the  costs ; 3  and  almost 
immediately  after  he  has  said  that  the  quantity  of  labour  alone 
determines  value,  he  shows  how  a  rise  in  the  wages  of  labour, 
associated  with  a  fall  in  profit,  alters  the  exchange  value  of 
goods, — raising  the  value  of  those  goods  in  the  production 
of  which  capital  of  less  than  average  durability  is  employed, 
and  reducing  the  value  of  those  goods  in  the  production  of 
which  capital  of  more  than  average  durability  is  employed.4 

And,  again,  M'Culloch  has  no  scruple  in  defining  profit  as 
an  "  excess  of  produce,"  as  a  "  surplus,"  as  "  the  portion  of  the 

1  Pp.  61,  205,  289  of  first  edition ;  fifth  edition,  pp.  6,  276. 

-  "The  cost  of  producing  commodities  is,  as  will  be  afterwards  shown, 
identical  with  the  quantity  of  labour  required  to  produce  them  and  bring  them  to 
market "  (first  edition,  p.  250).  Almost  in  the  same  words  in  fifth  edition,  p. 
250  :  "  The  cost  or  real  value  of  commodities  is,  as  already  seen,  determined  by 
the  quantity  of  labour,"  etc. 

3  "  But  it  is  quite  obvious  that  if  any  commodity  were  brought  to  market 
and  exchanged  for  a  greater  amount,  either  of  other  commodities  or  of  money, 
than  was  required  to  defray  the  cost  of  its  production,  including  in  that  cost 
the  common  and  average  rate  of  net  profit  at  the  time,"  etc.  (first  edition,  p. 
249  ;  fifth  edition,  p.  250). 

4  First  edition,  p.  298  ;  fifth  edition,  p.  283. 


CHAP,  v  KTCULLOCH  99 

produce  of  industry  accruing  to  the  capitalists  after  all  the 
produce  expended  by  them  is  fully  replaced," — in  short,  as  a 
surplus  pure  and  simple,  although  not  long  before  he  had 
pronounced  it  a  constituent  part  of  the  costs.  Here  are  almost 
as  many  contradictions  as  propositions  ! 

Nevertheless  M'Culloch  is  at  great  pains,  at  least  in  the 
first  edition  of  his  Principles,  to  appear  logical.  To  this  end 
he  avails  himself  of  a  theory  by  which  he  traces  profit  to 
labour.  Profits  are,  as  he  emphasises  with  italics  on  p.  291 
of  his  first  edition,  "  only  another  name  for  the  wages  of  ac- 
cumulated labour."  By  this  explanation  he  contrives  to  bring 
all  those  cases  where  profit  exerts  an  influence  on  value  under 
the  law  he  has  just  enunciated,  that  the  value  of  all  goods  is 
determined  by  labour.  We  shall  see  how  he  carries  this  out. 

"  Suppose,"  he  says,  "  to  illustrate  the  principle,  that  a  cask 
of  new  wine,  which  cost  £5  0,  is  put  into  a  cellar,  and  that  at 
the  end  of  twelve  months  it  is  worth  £55,  the  question  is, 
Whether  ought  the  £5  of  additional  value,  given  to  the  wine, 
to  be  considered  as  a  compensation  for  the  time  the  £5  0  worth 
of  capital  has  been  locked  up,  or  ought  it  to  be  considered  as 
the  value  of  additional  labour  actually  laid  out  on  the  wine  ?  " 
M'Culloch  concludes  for  the  latter  view,  "  for  this  most  satis- 
factory and  conclusive  reason,"  that  the  additional  value  only 
takes  place  in  the  case  of  an  immature  wine,  "  on  which,  there- 
fore, a  change  or  effect  is  to  be  produced,"  and  not  in  the  case  of 
a  wine  which  has  already  arrived  at  maturity.  This  seems 
to  him  "to  prove  incontrovertibly  that  the  additional  value 
acquired  by  the  wine  during  the  period  it  has  been  kept  in 
the  cellar  is  not  a  compensation  or  return  for  time,  but  for  the 
effect  or  change  that  has  been  produced  on  it  Time  cannot 
of  itself  produce  any  effect ;  it  merely  affords  space  for  really 
efficient  causes  to  operate,  and  it  is  therefore  clear  it  can  have 
nothing  to  do  with  value."  l 

In  these  words  M'Culloch,  with  almost  startling  naivety, 
concludes  his  demonstration.  He  seems  to  have  no  suspicion 
that,  between  what  he  wished  to  show  and  what  he  has  shown, 
there  is  a  very  great  difference.  What  he  had  to  show  was 
that  the  additional  value  was  caused  by  an  addition  of  labour, 
of  human  activity ;  what  he  has  shown  at  most  is,  that  the 

1  First  edition,  p.  313. 


100  THE  COLOURLESS  THEORIES  BOOK  i 

additional  value  was  not  given  by  time,  but  by  some  kind  of 
"  change "  in  the  wine.  ,  But  that  this  change  itself  was 
effected  by  an  addition  of  labour  is  not  only  not  shown,  but 
by  hypothesis  could  not  be  shown ;  for  during  the  whole  inter- 
vening time  the  wine  lay  untouched  in  the  cellar. 

He  himself  appears,  however,  to  be  sensible,  to  some  small 
extent,  of  the  weakness  of  this  first  demonstration ;  for,  "  still 
better  to  illustrate  this  proposition,"  he  adds  example  to 
example,  although  it  must  be  said  that,  the  more  clear  and 
exact  these  are  meant  to  be  as  demonstrations  of  his  thesis,  the 
more  obscure  and  impossible  they  actually  are. 

In  the  next  illustration  he  supposes  the  case  of  an 
individual  who  has  two  capitals,  "one  consisting  of  £1000 
worth  of  new  wine,  and  the  other  consisting  of  £900  worth  of 
leather,  and  £100  worth  of  money.  Suppose  now  that  the 
wine  is  put  into  a  cellar,  and  that  the  £100  is  paid  to  a  shoe- 
maker, who  is  employed  to  convert  the  leather  into  shoes.  At 
the  end  of  a  year  this  capitalist  will  have  two  equivalent  values 
— perhaps  £1100  worth  of  wine  and  £1100  worth  of  shoes." 
Therefore,  concludes  M'Culloch,  the  two  cases  are  parallel, 
and  "  both  shoes  and  wine  are  the  result  of  equal  quantities 
of  labour." l 

Without  doubt !  But  does  this  show  what  M'Culloch 
meant  to  show — that  the  additional  value  of  the  wine  was 
the  result  of  human  labour  expended  on  it  ?  Not  in  the 
lenst  The  two  cases  are  parallel ;  but  they  are  parallel  also 
in  this,  that  each  of  them  includes  an  increment  in  value  of 
£100,  which  is  not  explained  by  M'Culloch.  The  leather 
was  worth  £900.  The  £100  of  money  were  exchanged 
for  labour  of  equals  value ;  and  this  labour,  one  would  think, 
added  £100  in  value  to  the  raw  material.  Therefore  the 
total  product,  the  shoes,  should  be  worth  £1000.  But  they 
are  worth  £1100.  Whence  comes  the  surplus  value  ?  Surely 
not  from  the  labour  of  the  shoemaker !  For  in  that  case  the 
shoemaker,  who  was  paid  £100  in  wages,  would  have  added 
to  the  leather  a  surplus  value  of  £200,  and  the  capitalist,  in 
this  branch  of  his  business,  would  have  obtained  a  profit  of 
fully  100  per  cent,  which  is  contrary  to  hypothesis.  Whence 
then  comes  the  surplus  value  ?  M'Culioch  gives  no  explana- 

1  Pp.  313-315. 


THAP.  v  M'CULLOCH  101 

tion  in  the  case  of  the  leather,  and  still  less,  therefore,  in  the 
case  of  the  wine,  which  was  to  have  been  explained  by 
analogy  with  the  leather. 

But  M'Culloch  is  indefatigable.  "  The  case  of  timber," 
he  says,  "  affords  a  still  better  example.  Let  us  suppose 
that  a  tree  which  is  now  worth  £25  or  £30  was  planted 
a  hundred  years  ago  at  an  expense  of  one  shilling;  it  may 
be  easily  shown  that  the  present  value  of  the  tree  is  owing 
entirely  to  the  quantity  of  labour  laid  out  on  it.  A  tree 
is  at  once  a  piece  of  timber  and  a  machine  for  manufac- 
turing timber ;  and  though  the  original  cost  of  this  machine 
be  but  small,  yet,  as  it  is  not  liable  to  waste  or  decay,  the 
capital  vested  in  it  will,  at  the  end  of  a  distant  period,  have 
operated  a  considerable  effect,  or,  in  other  words,  will  have 
produced  a  considerable  value.  If  we  suppose  that  a  machine, 
which  cost  only  one  shilling,  had  been  invented  a  hundred 
years  since ;  that  this  machine  was  indestructible,  and  con- 
sequently required  no  repairs  ;  and  that  it  had  all  the  while 
been  employed  in  the  weaving  of  a  quantity  of  yarn,  gratuit- 
ously produced  by  nature,  which  was  only  now  finished,  this 
cloth  might  now  be  worth  £25  or  £30.  But,  whatever  value 
it  may  be  possessed  of,  it  is  evident  (!)  it  must  have  derived 
it  entirely  from  the  continued  agency  of  the  machine,  or,  in 
other  words,  from  the  quantity  of  labour  expended  on  its 
production"  (p.  317). 

That  is  to  say,  a  tree  has  cost  a  couple  of  hours'  labour, 
worth  a  single  shilling.  At  the  present  moment  the  same 
tree,  without  other  human  labour  being  expended  on  it 
in  the  interval,  is  worth  not  one  shilling,  but  £25  or  £30. 
And  M'Culloch  does  n-t  bring  this  forward  as  disproving,  but 
as  proving  the  proposition  that  the  value  of  goods  invariably 
adapts  itself  to  the  quantity  of  labour  which  their  production 
has  cost !  Any  further  commentary  is  superfluous.1 

1  It  would  to  some  extent  modify  this  judgment  of  M'Culloch  if  we  could 
assume  that,  in  the  above  argument,  he  has  used  the  word  Labour  in  that  vague 
and  confused  sense  in  which  he  uses  it  later  (note  1  to  his  edition  of  Adam 
Smith,  Edinburgh,  1863,  p.  435)  as  meaning  "every  kind  of  activity," — not  only 
that  exerted  by  men,  but  that  of  animals,  machines,  and  natural  powers.  Of 
course  by  such  a  watering  down  of  its  fundamental  conception  his  theory  of 
value  would  be  stripped  of  every  peculiar  characteristic,  and  reduced  to  an  idle 
play  upon  words ;  but  at  least  he  might  be  spared  the  reproach  of  logical 
nonsense.  However,  he  cannot  be  allowed  the  benefit  even  of  this  small  modifi- 


102  THE  COLOURLESS  THEORIES  BOOK  i 

In  later  editions  of  his  Principles  M'Culloch  has  dropped 
all  these  impossible  illustrations  of  the  proposition  that  profit  is 
wage  of  labour.  In  the  corresponding  passage  in  the  fifth  edition 
(pp.  292-294)  he  mentions  the  illustration  of  the  wine,  which 
evidently  causes  him  a  certain  amount  of  perplexity ;  but  he 
contents  himself  with  the  negative  statement  that  the  surplus 
value  is  not  produced  by  the  activity  of  natural  powers,  as 
natural  powers  work  gratuitously.  The  only  positive  statement 
he  makes  is,  that  the  increment  of  value  is  a  "  result  of  the 
profit "  which  accrues  to  the  capital  required  for  carrying  on 
the  process  ;  but  he  does  not  explain  the  nature  of  that  profit. 
On  p.  277,  however,  the  proposition  that  profit  is  only  another 
name  for  the  "  wages  of  anterior  labour,"  remains  unaltered. 

I  may  conclude  this  criticism  by  quoting  an  expression 
of  M'Culloch,  which  will  illustrate  his  untrustworthiness  in 
matters  of  theory. 

To  add  to  the  chaos  of  his  incoherent  opinions,  in  one 
place  he  takes  Adam  Smith's  old  self-interest  argument,1  and 
as  if  not  content  with  the  confusion  prevailing  in  his  theory 
of  interest,  and  anxious  to  throw  his  tolerably  clear  theory  of 
wages  into  the  same  confusion,  he  pronounces  the  labourer 
himself  to  be  a  capital,  a  machine,  and  calls  his  wages  a 
profit  of  capital  in  addition  to  a  sum  for  wear  and  tear  of  the 
"  machine  called  man  ! " 2 

Passing  by  another  set  of  writers  like  Whately,  Jones,  and 
Chalmers,  who  contribute  nothing  of  great  consequence  to  our 
subject,  we  come  to  M'Leod.3 

This  eccentric  writer  is  remarkable  for  the  naivety  with 
which  he  treats  the  interest  problem,  not  only  in  his  earlier 
work  of  1858,  but  in  his  later  work  of  1872,  although  in  the 

cation.  For  M'Culloch  expresses  himself  too  often,  and  too  decidedly,  to  the 
effect  that  interest  is  to  be  traced  to  the  human  labour  employed  in  the  production 
of  capital.  Thus,  e.g.  in  note  1  on  p.  22  of  his  edition  of  Adam  Smith,  where  he 
explains  interest  to  be  the  wage  of  that  labour  which  has  been  originally  expended 
in  the  formation  of  capital,  and  where  obviously  the  "labour"  of  the  machine 
itself  cannot  possibly  be  understood  ;  and,  particularly,  in  the  passage  (Principles, 
fifth  edition,  pp.  292-294)  where,  in  regard  to  the  illustration  of  the  wine,  he 
expressly  declares  that  its  surplus  value  is  not  produced  by  the  powers  of 
nature  as  these  work  gratuitously. 

1  First  edition,  p.  221,  in  note  ;  and  similarly  fifth  edition,  p.,  240,  at  end. 

-  First  edition,  p.  319  ;  second  edition,  p.  354  ;  fifth  edition,  pp.  294,  295. 

3  Elements  of  Political  Economy,  London,  1858  ;  Principles  of  Economical 
Philosophy,  second  edition,  London,  1872. 


CHAP,  v  M1LEOD  103 

fourteen  years  that  intervened  the  problem  had  very  greatly 
developed.  For  M'Leod  there  is  absolutely  no  problem. 
Profit  is  simply  a  self-explanatory  and  necessary  fact.  The 
price  of  commodities  sold,  the  hire  of  concrete  capital  lent, 
the  interest  on  sums  of  money  borrowed,  "  must,"  over  and 
above  costs,  deterioration,  and  premium  on  risk,  contain  the 
"necessary"  profit.1  Why  they  should  do  so  is  not  once 
asked,  even  in  the  most  superficial  way. 

If  on  one  occasion  M'Leod  describes  the  origin  of  loan 
interest,  the  immediate  circumstances  of  the  illustration  in 
which  he  does  so  are  selected  in  such  a  way  that  the  obtaining 
of  an  "  increase "  from  the  capital  lent  admits  of  being  re- 
presented as  a  natural  self  -  intelligible  thing,  requiring  no 
explanation.  He  makes  the  capitalist  lend  seed  and  sheep,2 
but  even  where  the  capital  lent  is  one  that  does  not  consist  of 
naturally  fruitful  objects,  he  considers  the  emergence  of  an 
increase  as  equally  self-explanatory.  That  any  one  should 
think  otherwise — that  any  one  should  even  doubt  the  justifi- 
ability of  profit,  he  appears,  in  spite  of  the  wide  dissemination 
of  socialistic  ideas  in  his  time,  to  have  no  suspicion.  To  him 
it  is  perfectly  clear  that  "  when  a  man  employs  his  own  capital 
in  trade  he  is  entitled  to  retain  for  his  own  use  all  the  profit 
resulting  from  such  operations,  whether  these  profits  be  20  per 
cent,  100  per  cent,  or  1000  per  cent ;  and  if  any  one  of 
superior  powers  of  invention  were  to  employ  his  capital  in 
producing  a  machine,  he  might  realise  immense  profits  and 
accumulate  a  splendid  fortune,  and  no  one  in  the  ordinary 
possession  of  their  senses  would  grudge  it  him."  J 

At  the  same  time  M'Leod  plays  the  severe  critic  on  other 
interest  theories.  He  rejects  the  doctrine  that  profit  is  a 
constituent  of  the  costs  of  production.*  He  controverts 
Pdcardo's  statement  that  the  height  of  profit  is  limited  by 
the  height  of  wages.5  He  condemns  alike  M'Culloch's  strange 
Labour  theory  and  Senior's  acute  Abstinence  theory.6  And  yet 
these  critical  attacks  never  seem  to  have  suggested  to  him  one 
single  view  which  might  be  put  in  place  of  the  opinions  he 
rejects. 

1  Elements,  pp.  ~6,  77,  81,  202,  226,  etc.  -  Ibid.  p.  62. 

J  Ibid.  p.  216.  4  Economical  Philosophy,  i.  p.  638. 

,  p.  145  6  E  m^.niccol  Philosophy,  i.  p.  634  ;  ii.  p.  62. 


104  THE  COLOURLESS  THEORIES  BOOK  i 

This  appears  to  me  due  to  two  peculiarities  of  his  doctrine. 
The  first  of  these  lies  in  the  extraordinary  vagueness  of  his 
conception  of  capital.  Capital,  in  its  original  and  primary 
sense,  he  takes  to  mean  "  circulating  power."  It  is  only  in  a 
"  secondary  and  metaphorical  sense "  that  it  is  applied  to 
commodities.  But  when  so  applied  it  embraces  things  so 
incongruous  as  tools  and  commodities,  skill,  capacities,  educa- 
tion, land,  and  good  character,1 — a  collection  which,  we  must 
admit,  makes  it  difficult  to  class  the  incomes  that  flow  from  all 
those  different  kinds  of  things  under  one  category,  and  explain 
them  by  one  definite  theory.  The  second  of  these  peculiarities 
is  the  exaggerated  opinion  he  entertains  of  the  theoretical 
value  of  the  formula  of  supply  and  demand  to  explain  the 
various  phenomena  of  price.  When  he  has  succeeded  in 
tracing  back  any  phenomenon  of  value  whatever  to  the 
relation  of  supply  and  demand, — or,  as  he  likes  to  express  it  in 
his  own  terminology,  to  the  relation  between  "the  intensity 
of  the  service  performed  and  the  power  of  the  buyer  over 
the  seller," — he  thinks  that  he  has  done  enough.  And  thus, 
perhaps,  he  really  thought  it  sufficient  to  say  of  interest  on 
capital:  "All  value  arises  exclusively  from  demand,  and  all 
profit  originates  in  the  value  of  a  commodity  exceeding  its 
costs  of  production."  2 

While  in  Germany  and  England  there  were  a  good  many 
prominent  writers  who,  for  some  considerable  time,  took  an 
undecided  attitude  on  the  interest  problem,  we  have  only  a 
few  Colourless  writers  to  record  in  the  literature  of  France. 
The  principal  reason  of  this  difference  is  that  in  France  J. 
B.  Say,  who  was  one  of  the  first  to  take  up  Adam  Smith's 
doctrine,  had  already  propounded  a  definite  theory  of  interest, 
and  popularised  it  simultaneously  with  Adam  Smith's  doctrine ; 
while  in  Germany  and  England  Adam  Smith  himself,  and  after 
him  Ricardo,  remained  for  a  long  time  at  the  head  of  the 
general  development  of  economic  literature ;  and  both  of  these, 
as  we  know,  neglected  the  interest  problem. 

From  French  literature  of  that  period  there  are,  then,  only 
three  names  which  need  be  mentioned,  two  of  them  before  the 
date  of  J.  B.  Say — Germain  Gamier,  Canard,  and  Droz. 

1  Elements,  pp.  66,  69. 

2  Principles  of  Economical  Philosophy,  iL  p.  66. 


CHAP,  v  GARNIER,  CANARD  105 

Garnier,1  still  half  entangled  in  the  doctrine  of  the  physio- 
crats, like  them  asserts  the  earth  to  be  the  only  source  of  all 
wealth,  and  labour  the  instrument  by  which  men  obtain  it  from 
this  source  (p.  9).  Capital  he  identifies  with  the  "advances" 
that  the  undertaker  must  make,  and  profit  he  defines  as  the 
indemnification  which  he  receives  for  these  advances  (p.  35). 
In  one  place  he  designates  it  with  more  significance  as  the 
"  indemnification  for  a '  privation  and  a  risk."  He  nowhere, 
however,  goes  any  deeper  into  the  matter. 

To  indicate  Canard's 2  derivation  of  interest  I  must  shortly 
refer  to  the  general  principles  of  his  doctrine. 

In  the  labour  of  man  Canard  sees  the  means  to  his  support 
and  development.  One  portion  of  human  labour  must  be  spent 
simply  in  the  support  of  man ;  that  Canard  calls  "  necessary 
labour."  But  happily  the  whole  labour  of  man  is  not  necessary 
for  this ;  the  remainder,  "  superfluous  labour,"  may  be  employed 
in  the  production  of  goods  which  go  beyond  the  immediately 
necessary,  and  create  for  their  producer  a  claim  to  get,  by  way 
of  exchange,  the  command  of  just  as  much  labour  as  the 
production  of  these  goods  has  cost.  Labour  is  thus  the  source 
of  all  exchange  value ;  goods  which  have  value  in  exchange 
are  nothing  else  than  accumulation  of  superfluous  labour. 

It  is  the  possibility  of  accumulating  superfluous  labour  that 
humanity  has  to  thank  for  all  economic  progress.  Through 
such  accumulation  lands  are  made  fruitful,  machines  built,  and, 
generally  speaking,  all  the  thousand  and  one  means  obtained 
which  serve  to  increase  the  product  of  human  labour. 

Now  the  accumulation  of  superfluous  labour  is  also  the 
source  of  all  rents.  It  may  yield  these  rents  by  being 
employed  in  any  of  three  ways.  First,  in  manuring  and  im- 
proving the  land ;  the  net  return  arising  from  this  is  land- 
rent  (rente  fonci&re).  Second,  in  the  acquisition  of  personal 
skill,  learning  of  an  art  or  a  handicraft ;  the  skilled  labour 
(travail  appris)  which  is  the  result  of  such  an  expenditure 
must,  beyond  the  wage  of  "  natural "  labour,  yield  a  rent  to 
that  fund  which  had  to  be  devoted  to  the  acquisition  of  the 
knowledge.  Finally,  all  the  products  of  labour  that  proceed 
from  these  first  two  "  sources  of  rent "  must  be  divided  out,  so 

1  Abrtgi  EUmentaire  des  Principes  de  F  Economic  PolUique,  Paris,  1796. 

2  Principes  cC  Economic  Politique,  Paris,  1801. 


106  THE  COLOURLESS  THEORIES  BOOK  i 

as  to  be  employed  by  individuals  in  the  satisfaction  of  their 
wants.  This  requires  that  a  third  class  of  owners  should 
invest  "superfluous  labour"  in  the  institutions  of  commerce. 
This  accumulated  labour  also  must  bear  a  rent,  the  rente 
mobiliere,  commonly  called  money  interest. 

But  as  to  why  labour  accumulated  in  these  three  forms 
should  bear  rent  we  are  told  almost  nothing  by  Canard.  Land- 
rent  he  accepts  as  a  natural  fact  not  requiring  explanation.1 
In  the  same  way  he  treats  the  rente  industrielle,  contenting 
himself  with  saying  that  "  skilled  labour "  must  produce  the 
rent  of  the  capital  that  has  been  devoted  to  the  acquisition 
of  knowledge  (p.  10).  And  for  the  rente  mobiliere,  our  interest 
on  capital,  he  lays  down  a  proposition  which  explains  nothing, 
and  embellishes  it  with  details  evidently  intended  to  accom- 
pany an  explanation.  "  Commerce,  accordingly,  like  the  other 
two  sources  of  rent,  presupposes  an  accumulation  of  superfluous 
labour  which  must,  in  consequence,  bear  a  rent "  (qui  doit  par 
consequent  produire  une  rente),  p.  12.  But  there  is  nothing 
whatever  to  justify  this  par  consequent,  unless  Canard,  perhaps, 
considers  that  the  bare  fact  of  labour  having  been  accumulated 
is  sufficient  ground  for  its  obtaining  a  rent;  and  so  far  he  has 
not  said  so.  He  has  certainly  said  that  all  rents  are  traceable 
to  accumulated  labour,  but  he  has  not  said  that  all  accumulated 
labour  must  bear  a  rent — a  proposition  which,  in  any  case,  is 
quite  different  from  the  other,  and  would  have  been  a  matter 
for  proof  as  well  as  assertion. 

If  we  take  an  analysis  which  follows  later  (p.  13),  to 
the  effect  that  all  three  kinds  of  rent  must  stand  equal  in 
importance,  then  undoubtedly  we  can  make  out  a  certain 
foundation  for  interest,  although  Canard  has  not  put  it  into 
words ;  a  foundation  which  would  agree  in  essence  with 
Turgot's  Fructification  theory.  If  it  is  a  natural  fact  that 
capital  invested  in  land  bears  rent,  then  all  capitals  other- 
wise invested  must  bear  rent,  or  else  everybody  would  invest 
in  land.  But  if  this  be  Canard's  explanation—  and  it  may 
at  least  be  read  between  the  lines — we  have  already,  when 

1  "The  earth  has  only  been  cultivated  bccai  se  i  ;  product  was  able,  not  o.  Ay 
to  compensate  the  annual  labour  of  cultivation,  but  also  to  recompense  the 
advances  of  labour  which  its  first  and  original  cultivation  cost.  This  superfluity 
it  is  which  forms  the  rent  of  land  "  (p.  5). 


CHAP,  v  CANARD,  DROZ  107 

speaking  of  Turgot,  shown  its  insufficiency  as  the  sole  ex- 
planation. 

Droz,  who  writes  some  thirty  years  later  (Economie  Poli- 
tique,  Paris,  1829),  has  to  choose  between  the  English  view, 
according  to  which  labour  is  the  sole  productive  power,  and 
the  theory  of  Say,  in  which  capital  represents  an  independent 
productive  power.  In  each  of  these  views,  however,  he  finds 
something  to  object  to,  and  accepts  neither  of  them,  but  puts 
forward  a  third  view,  in  which  saving  (Vtpargne)  takes  the 
place  of  capital  as  an  elementary  productive  power.  He  thus 
recognises  three  productive  powers :  the  Labour  of  Nature, 
the  Labour  of  Man,  and  the  Saving  which  accumulates  capitals 
(p.  69,  etc.) 

If  Droz  had  followed  this  line  of  thought,  belonging 
primarily  to  the  theory  of  production,  into  the  sphere  of  dis- 
tribution, and  made  use  of  it  to  examine  accurately  the  nature 
of  income,  he  would  have  arrived  at  a  distinctive  theory  of 
interest.  But  he  did  not  go  far  enough  for  that.  In  his 
distribution  theory  he  devotes  almost  all  his  tttention  to 
contract  or  loan  interest,  where  there  is  not  much  to  explain, 
and  in  a  few  words  disposes  of  natural  interest,  where  there  is 
everything  to  explain.  In  these  few  words  he  gives  himself 
no  chance  of  going  any  deeper  into  the  nature  of  interest  by 
treating  it  as  interest  on  loans  which  the  capitalist  pays  to 
himself  (p.  267).  Thus  Droz,  in  introducing  the  productive 
power  of  "  saving,"  begins  well,  but  all  the  same  he  doeb  not 
escape  from  the  category  of  the  Colourless  writers. 


CHAPTEE    I 

THE    PRODUCTIVE    POWER    OF    CAPITAL 

SOME  of  the  immediate  successors  of  Adam  Smith  began  to 
explain  interest  by  the  Productive  Power  of  capital.  J.  B. 
Say  led  the  way  in  1803.  A  year  after  Lord  Lauderdale  fol- 
lowed, but  independently  of  Say.  The  new  explanation  found 
acceptance.  It  was  taken  up>  by  gradually  widening  circles  of 
economists,  and  worked  out  by  them  with  greater  care ;  in 
course  of  which  it  became  divided  into  several  branches 
marked  by  considerable  divergence.  Although  attacked  in 
many  ways,  chiefly  from  the  socialist  side,  the  Productivity 
theory  has  managed  to  hold  its  own.  Indeed,  at  the  present 
time  the  majority  of  such  writers  as  are  not  entirely  opposed 
to  interest,  acquiesce  in  one  or  other  modification  of  this  theory. 
The  idea  that  capital  produces  its  own  interest,  whether 
true  or  false,  seems  at  least  to  be  clear  and  simple.  It  might 
be  expected,  therefore,  that  the  theories  built  on  this  funda- 
mental idea  would  be  marked  by  a  peculiar  definiteness  and 
transparency  in  their  arguments.  In  this  expectation,  how- 
ever, we  should  be  completely  disappointed.  Unhappily  the 
most  important  conceptions  connected  with  the  Productivity 
theories  suffer  in  an  unusual  degree  from  indistinctness  and 
ambiguity;  and  this  has  been  the  abundant  source  of  obscurity, - 
mistakes,  confusion,  and  fallacious  conclusions  of  every  kind. 
These  occur  so  frequently  that  it  would  be  unwise  to  let  the 
reader  meet  them  without  some  preparation.  Once  embarked 
on  a  sea  of  individual  statements,  it  would  be  impossible  to 
find  our  reckoning.  It  seems  then  necessary  to  mark  out 
distinctly,  in  a  few  introductory  remarks,  the  ground  we  mean 
to  cover  in  stating  and  criticising  these  theories. 


112  THE  PRODUCTIVE  POWER  OF  CAPITAL      BOOK  n 

Two  things  here  seem  to  stand  particularly  in  need  of 
clear  statement.  First,  the  meaning,  or,  more  properly,  the 
complex  of  meanings  of  the  expression  Productivity  or  Produc- 
tive Power  of  capital ;  and  second,  the  nature  of  the  theoretic 
task  assigned  by  these  theories  to  this  productivity. 

First,  What  is  meant  by  saying,  Capital  is  productive  ? 

In  its  most  common  and  weakest  sense  the  expression 
may  be  taken  to  mean  no  more  than  this, — that  capital  serves 
towards  the  production  of  goods,  in  opposition  to  the  im- 
mediate satisfaction  of  needs.  The  predicate  "productive," 
then,  would  only  be  applied  to  capital  in  the  same  sense  as, 
in  the  usual  classification  of  goods,  we  speak  of  "  productive 
goods,"  in  opposition  to  "goods  for  immediate  consumption" 
(Genussgiiter).  Indeed  the  smallest  degree  of  productive 
effect  would  warrant  the  conferring  of  that  predicate,  even 
if  the  product  should  not  attain  to  the  value  of  the  capital 
expended  in  making  it.  It  is  clear  from  the  first  that  a  pro- 
ductive power  in  this  sense  cannot  possibly  be  the  sufficient 
cause  of  interest. 

The  adherents  of  those  theories,  then,  must  ascribe  a 
stronger  meaning  to  the  term.  Expressly  or  tacitly  they 
understand  it  as  meaning  that,  by  the  aid  of  capital,  more  is 
produced ;  that  capital  is  the  cause  of  a  particular  productive 
surplus  result. 

But  this  meaning  also  is  subdivided.  The  words  "to 
produce  more"  or  "a  productive  surplus  result"  may  mean 
one  of  two  things.  They  may  either  mean  that  capital  pro- 
duces more  goods  or  more  value,  and  these  are  in  no  way 
identical.  To  keep  the  two  as  distinct  in  name  as  they  are 
in  fact,  I  shall  designate  the  capacity  of  capital  to  produce 
more  goods  as  its  "  Physical  Productivity  " ;  its  capacity  to  pro- 
duce more  value  as  its  "  Value  Productivity."  It  is  perhaps 
not  unnecessary  to  say  that,  at  the  present  stage,  I  leave  it 
q\iite  an  open  question  whether  capital  actually  possesses  such 
capacities  or  not.  I  only  mention  the  different  meanings 
which  may  be  given,  and  have  been  given,  to  the  proposition 
"  capital  is  productive." 

Physical  productivity  manifests  itself  in  an  increased 
quantity  of  products,  or,  it  may  be,  in  an  improved  quality  of 
products.  We  may  illustrate  it  by  the  well-known  example 


CHAP,  i  CAPITAL  IS  PRODUCTIVE  113 

given  by  Roscher:  "Suppose  a  nation  of  fisher-folk,  with,  no 
private  ownership  in  land  and  no  capital,  dweDing  naked  in 
caves,  and  living  on  fish  caught  by  the  hand  in  pools  left  by 
the  ebbing  tide.  All  the  workers  here  may  be  supposed 
equal,  and  each  man  catches  and  eats  three  fish  per  day.  But 
now  one  prudent  man  limits  his  consumption  to  two  fish  per 
day  for  100  days,  lays  up  in  this  way  a  stock  of  100 
fish,  and  makes  use  of  this  stock  to  enable  him  to  apply 
his  whole  labour-power  to  the  making  of  a  boat  and  net.  By 
the  aid  of  this  capital  he  catches  from  the  first  perhaps  thirty 
fish  a  day."  l 

Here  the  Physical  Productivity  of  capital  is  manifested 
in  the  fact  that  the  fisher,  by  the  aid  of  capital,  catches  more 
fish  than  he  would  otherwise  have  caught — thirty  instead  of 
three.  Or,  to  put  it  quite  correctly,  a  number  somewhat 
under  thirty.  For  the  thirty  fish  which  are  now  caught  in  a 
day  are  the  result  of  more  than  one  day's  work.  To  calculate 
properly,  we  must  add  to  the  labour  of  catching  fish  a  quota 
of  the  labour  that  was  given  to  the  making  of  boat  and  net. 
If,  e.g.  fifty  days  of  labour  have  been  required  to  make  the 
boat  and  net,  and  the  boat  and  net  last  for  100  days,  then 
the  3000  fish  which  are  caught  in  the  100  days  appear 
as  the  result  of  150  days'  labour.  The  surplus  of  products, 
then,  due  to  the  employment  of  capital  is  represented  for  the 
whole  period  by  3000  -(150x3)  =  3000  —  450  =  2550  fish, 
and  for  each  single  day  by  ^f^f  —  3  =  17  fish.  In  this 
surplus  of  products  is  manifested  the  physical  productivity  of 
capital. 

Now  how  would  the  Value  Productivity  of  capital  be 
manifested  ?  The  expression  "  to  produce  more  value,"  in  its 
turn,  is  ambiguous,  because  the  "  more  "  may  be  measured  by 
various  standards.  It  may  mean  that,  by  the  aid  of  capital, 
an  amount  of  value  is  produced  which  is  greater  than  the 
amount  of  value  that  could  be  produced  without  the  aid  of 
capital.  To  use  our  illustration :  it  may  mean  that  the 
twenty  fish  caught  in  a  day's  labour  by  the  aid  of  capital 
are  of  more  value  than  the  three  fish  which  were  got  when  no 
capital  was  employed.  But  the  expression  may  also  mean 
that,  by  the  aid  of  capital,  an  amount  of  value  is  produced 

1  Grundlagen  der  National- Oekonomie,  tenth  edition,  §  189. 
I 


114  THE  PRODU'CTIVE  POWER  OF  CAPITAL       BOOK  n 

which  is  greater  than  the  value  of  the  capital  itself ;  in  other 
words,  that  the  capital  gives  a  productive  return  greater 
than  its  own  value,  so  that  there  remains  a.  surplus  value 
over  and  above  the  value  of  the  capital  consumed  in  the 
production.  To  put  it  in  terms  of  our  illustration :  the  fisher 
equipped  with  boat  and  net  in  100  days  catches  2700  fish 
more  than  he  would  have  caught  without  boat  and  net. 
These  2700  fish,  consequently,  are  shown  to  be  the  (gross) 
return  to  the  employment  of  capital.  And,  according  to  the 
present  reading  of  the  expression,  these  2700  fish  are  of  more 
value  than  the  boat  and  net  themselves  ;  so  that  after  boat  and 
net  are  worn  out  there  still  remains  a  surplus  of  value. 

Of  these  two  possible  meanings  those  writers  who  ascribe 
value  productivity  to  capital  have  usually  the  latter  in  their 
mind.  When,  therefore,  I  use  the  expression  "value  produc- 
tivity" without  any  qualification,  I  shall  mean  by  it  the 
capacity  of  capital  to  produce  a  surplus  of  value  over  its  own 
value. 

Thus  for  the  apparently  simple  proposition  that  "  capital 
is  productive"  we  have  found  no  less  than  four  meanings 
clearly  distinguishable  from  each  other.  To  get  a  satisfactory 
conspectus  let  me  place  them  once  more  in  order. 

The  proposition  may  signify  four  things  : — 

1.  Capital   has  the  capacity  of  serving  towards  the  pro- 
duction of  goods. 

2.  Capital  has  the  power  of  serving  towards  the  production 
of  more  goods  than  could  be  produced  without  it. 

3.  Capital  has  the  power  of  serving  towards  the  production 
of  more  value  than  could  be  produced  without  it. 

4.  Capital  has  the  power  of  producing  more  value  than  it 
has  in  itself.1 

1  It  would  be  very  easy  to  extend  the  above  list.  Thus  physical  produc- 
tivity might  be  shown  to  contain  two  varieties.  The  first, — the  only  one  con- 
sidered in  the  text, — is  where  the  capitalist  process  of  production  on  the  whole 
(that  is,  the  preparatory  production  of  the  capital  itself,  and  the  production 
by  the  aid  of  the  capital  when  made)  has  led  to  the  production  of  more  goods. 
But  it  may  also  happen  that  the  first  phase  of  the  total  process,  the  formation  of 
capital,  shows  so  large  a  deficit  that  the  total  capitalist  production  ends  by 
showing  no  surplus  ;  while,  all  the  same,  the  second  phase  taken  by  itself,  the 
production  by  aid  of  the  capital,  produces  a  surplus  in  goods.  Suppose,  c.  g.  that 
the  boat  and  net  which  last  100  days  had  required  2000  days  for  their  production, 
then  the  fisher  would  receive  for  the  use  of  boat  and  net  which  have  cost  in  all 


CHAP,  i  CAPITAL  IS  PRODUCTIVE  115 

It  does  not  require  to  be  said  in  so  many  words  that  ideas 
so  different,  even  if  they  should  chance  to  be  called  by  the 
same  name,  should  not  be  identified, — still  less  substituted  for 
one  another  in  the  course  of  argument.  It  should  be  self- 
evident,  e.g.  that,  if  one  has  proved  that,  speaking  generally, 
capital  has  a  capacity  to  serve  towards  the  production  of  goods, 
or  towards  the  production  of  more  goods,  he  is  not  on  that 
account  warranted  in  holding  it  as  proved  that  there  is  a 
power  in  capital  to  produce  more  value  than  could  have  been 
produced  otherwise,  or  to  .produce  more  value  than  the 
capital  itself  has.  To  substitute  the  latter  conception  for  the 
former  in  the  course  of  argument  would  evidently  have  the 
character  of  begging  the  question.  However  unnecessary  this 
reminder  should  be,  it  must  be  given ;  because,  as  we  shall 
see,  among  the  Productivity  theorists  nothing  is  more  common 
than  the  arbitrary  confusing  of  these  conceptions. 

To  come  now  to  the  second  point,  of  which  at  this 
introductory  stage  I  am  very  anxious  to  give  a  clear  state- 
ment,— the  nature  of  the  task  assigned  to  the  productive 
power  of  capital  by  the  theories  in  question. 

This  task  may  be  very  simply  described  in  the  words ; — 
the  Productivity  theories  propose  to  explain  interest  by  the 
productive  power  of  capital.  But  in  these  simple  words  lie 
many  meanings  which  deserve  more  exact  consideration. 

The  subject  of  explanation  is  Interest  on  capital.  Since 
there  is  no  question  that  contract  interest  (loan  interest)  is 
founded  in  essential  respects  on  natural  interest,  and  can  be 
easily  dealt  with  in  a  secondary  explanation,  if  this  natural 

2100  days  of  labour,  only  100x30  =  3000  fish,  while  with  the  hand  alone  he 
could  have  caught  in  the  same  time  2100  x  30  =  6300  fish.  On  the  other  hand, 
if  we  look  at  the  second  phase  by  itself,  then  the  capital,  now  in  existence, 
of  course  shows  itself  "  productive"  ;  with  its  help  in  300  days  the  fisher  catches 
3000  fish  ;  without  its  help,  only  300.  If,  on  that  account,  we  speak,  even  in 
this  case,  of  a  productive  surplus  result,  and  of  a  productive  power  of  capital — as, 
in  fact,  we  usually  do — it  is  not  without  justification  ;  only  the  expression  has 
quite  a  different  and  a  much  weaker  meaning.  Further,  with  the  recognition  of 
the  productive  power  of  capital  is  often  bound  up  the  additional  meaning,  that 
capital  is  an  independent  productive  power  ;  not  only  the  proximate  cause  of  a 
productive  effect,  traceable  in  the  last  resort  to  the  labour  which  produced  the 
capital,  but  an  element  entirely  independent  of  labour.  .  .  .  I  have  intentionally 
not  gone  into  these  varieties  in  the  text,  as  I  do  not  wish  to  burden  the  reader 
with  distinctions  of  which,  in  the  meantime  at  least,  I  do  not  intend  to  make  any 
use. 


116  THE  PRODUCTIVE  POWER  OF  CAPITAL      BOOK  n 

interest  first  be  satisfactorily  explained,  the  subject  of  explana- 
tion may  be  further  limited  to  Natural  Interest  on  capital 

The  facts  about  natural  interest  may  be  shortly  described 
as  follows. 

Wherever  capital  is  employed  in  production,  experience 
shows  that,  in  the  normal  course  of  things,  the  return,  or 
share  in  the  return,  which  the  capital  creates  for  its  owner, 
has  a  greater  value  than  the  sum  of  the  objects  of  capital 
consumed  in  obtaining  it. 

This  phenomenon  appears  both  in  those  comparatively 
rare  cases  where  capital  alone  has  been  concerned  in  the 
obtaining  of  a  return, — as,  e.g.  when  new  wine,  by  lying  in 
store,  becomes  changed  into  matured  and  better  wine, — and  in 
the  much  more  common  cases  where  capital  co-operates  with 
other  factors  of  production,  land  and  labour.  For  sufficient 
reasons  that  do  not  concern  us  here,  men  engaged  in  economic 
pursuits  are  accustomed  to  divide  out  the  total  product  into 
separate  shares,  although  it  is  made  by  undivided  co-operation. 
To  capital  is  ascribed  one  share  as,  its  specific  return;  one 
share  to  nature  as  produce  of  the>  ground,  produce  of  mines, 
etc. ;  one  share,  finally,  to  the  labour  that  co-operates,  as  product 
of  labour.1  Now  experience  shows  that  that  quota  of  the  total 
product  which  falls  to  the  share  of  capital — that  is,  the  gross 
return  to  capital — is,  as  a  rule,  of  more  value  than  the  capital 
expended  in  its  attainment.  Hence  an  excess  of  value — a 
"  surplus  value  " — which  remains  in  the  hands  of  the  owner  of 
the  capital,  and  constitutes  Jiis  natural  interest. 

The  theorist,  then,  who  professes  to  explain  interest  must 
explain  the  emergence  of  Surplus  Value.  The  problem,  more 

1  Whether  the  shares  allotted,  in  practical  economic  life,  to  tho  individual 
factors  in  production  exactly  correspond  to  the  quota  which  each  of  them  has 
produced  in  the  total  production,  is  a  much  disputed  question  that  I  cannot 
prejudge  meantime.  I  hare,  on  that  account,  chosen  to  use  in  the  text  modes 
of  expression  that  do  not  commit  me  to  any  view.  Moreover  it  is  to  be  noted 
that  the  phenomenon  of  surplus  value  takes  place,  not  only  between  individual 
shares  in  the  return  as  thus  allotted,  and  the  sources  of  return  that  correspond 
to  them,  but  also,  on  the  whole,  between  the  goods  brought  forward  and  the 
goods  that  bring  them  forward.  The  totality  of  the  means  of  production  em- 
ployed in-  making  a  product — labour,  capital,  and  use  of  land — has,  as  a  rule,  a 
smaller  exchange  value  than  the  product  has  when  finished — a  circumstance  that 
makes  it  difficult  to  trace  the  phenomenon  of  "surplus  value"  to  mere  relations 
of  allotment  inside  the  return. 


CHAP,  i  SURPLUS  VALUE  117 

exactly  stated,  will  therefore  run  thus  :  Why  is  the  gross  return 
to  capital  invariably  of  more  value  than  the  portions  of  capital 
consumed  in  its  attainment  ?  Or,  in  other  words,  Why  is  there 
a  constant  difference  in  value  between  the  capital  expended 
and  its  return  ? l  To  take  a  step  farther. 

This  difference  in  value  the  Productivity  theories  think  to 
explain,  and  ought  to  explain,  by  the  productive  power  of 
capital. 

By  the  word  "  explain  "  I  mean  that  they  must  show  the 
productive  power  of  capital  to  be  the  entirely  sufficient  cause 
of  surplus  value,  and  not  merely  name  it  as  one  condition 
among  other  unexplained  conditions.  To  show  that,  without 
the  productive  power  of  capital,  there  could  be  no  surplus 
value,  does  not  explain  surplus  value  any  more  than  it  would 
explain  land-rent  if  we  showed  that,  without  the  fruitfulness 
of  the  soil,  there  could  be  no  land -rent;  or  than  it  would 
explain  rain  if  we  showed  that  water  could  not  fall  to  the 
ground  without  the  action  of  gravity. 

If  surplus  value  is  to  be  explained  by  the  productive 
power  of  capital,  it  is  necessary  to  prove  or  show  in  capital  a 
productive  power  of  such  a  kind  that  it  is  capable,  either  by 
itself  or  in  conjunction  with  other  factors  (in  which  latter 
case  the  other  factors  must  equally  be  included  in  the  ex- 
planation), of  being  the  entirely  sufficient  cause  of  the  exist- 
ence of  surplus  value. 

It  is  conceivable  that  this  condition  might  be  fulfilled  in 
any  of  three  ways. 

1.  If  it  were  proved  or  made  evident  that  capital  possesses 
in  itself  a  power  which  directly  makes  for  the  creating  of  value, 
— a  power  through  which  capital  is.  able,  as  it  were,  to  breathe 
value  like  an  economic  soul  into  those  goods  which  it  assists, 
physically  speaking,  to  make.       This  :s  value  productivity  in 
the  most  literal  and  emphatic  sense  that  could  possibly  be 
given  it. 

2.  If  it  were  proved  or  made  evident  that  capital  by  its 
services  helps  towards  the  obtaining  of  more  goods,  or  more 
useful  goods;  and  if,  at  the  same   time,  it  was   immediately 
evident  that  the  more  goods,  or  the  better  goods,  must  also  be 

1  On  the  putting  of  the  problem  see  my  Rcchte  und  Verhaltnisse,  Innsbruck, 
1881,  p.  107,  etc. 


113  THE  PRODUCTIVE  POWER  OF  CAPITAL       BOOK  n 

of  more  value  than  the  capital  consumed  in  their  production. 
This  is  physical  productivity  with  surplus  value  as  a  self- 
explanatory  result. 

3.  If  it  were  proved  or  shown  that  capital  by  its  services 
helps  towards  the  obtaining  of  more  goods,  or  more  useful 
goods ;  and  if,  at  the  same  time,  it  were  expressly  proved  that 
the  more  goods,  or  the  better  goods,  must  also  be  of  more 
value  than  the  capital  consumed  in  their  production,  and  why 
they  should  be  of  more  value.  This  is  physical  productivity 
with  surplus  value  expressly  accounted  for. 

These  are,  in  my  opinion,  the  only  modes  in  which  the 
productive  power  of  capital  can  be  taken  as  sufficient  foundation 
for  surplus  value.  Any  appeal  to  that  productive  power 
outside  these  three  modes  can,  in  the  nature  of  the  case, 
have  no  explanatory  force  whatever.  If,  e.g.  appeal  is  made 
to  the  physical  productivity  of  capital,  but  if  it  is  neither 
shown  to  be  self-evident,  nor  expressly  proved,  that  a  surplus 
value  accompanies  the  increased  amount  of  goods,  such  a  pro- 
ductive power  would  evidently  not  be  an  adequate  cause  of 
surplus  value. 

The  historical  development  of  the  actual  productivity 
theories  is  not  behind  the  above  abstract  schem'e  of  possible 
productivity  theories  in  point  of  variety.  Each  of  the  possible 
types  of  explanation  has  found  its  representative  in  economical 
history.  The  great  internal  differences  that  exist  between 
separate  typical  developments  strongly  suggest  that,  for  pur- 
poses of  statement  and  criticism,  we  should  arrange  the  pro- 
ductivity theories  in  groups.  The  grouping  will  be  based  on 
our  scheme,  but  will  not  follow  it  quite  closely.  Those 
productivity  theories  which  follow  the  first  two  types  have 
so  much  in  common  that  they  may  conveniently  be  treated 
together ;  while,  within  the  third  type,  we  find  such  important 
differences  that  a  further  division  seems  to  be  required. 

1.  Those  productivity  theories  which  claim  for  capital  a 
direct  value-producing  power  (first  type),  as  well  as  those  which 
start  from  the  physical  productivity  of  capital,  but  believe  that 
the  phenomenon  of  surplus  value  is  self- evidently  and  neces- 
sarily bound  up  with  it  (second  type),  agree  in  this,  that  they 
derive  surplus  value  immediately,  and  without  explanatory 
middle  term,  from  the  asserted  productive  power.  They 


CHAP,  i  THREE  ACTUAL  THEORIES  119 

simply  state  that  capital  is  productive  ;  adding,  perhaps,  a  very 
superficial  description  of  its  productive  efficiency,  and  hastily 
conclude  by  placing  surplus  value  to  the  account  of  the 
asserted  productive  power.  I  shall  group  these  together  under 
the  name  of  the  Naive  Productivity  theories.  The  paucity 
of  argument,  which  is  one  of  their  characteristics,  is  in  many 
cases  such  that  it  is  not  even  clear  whether  the  author  belongs 
to  the  first  or  the  second  type — one  more  reason  for  grouping 
tendencies  that  merge  into  one  another  under  one  historical 
consideration. 

2.  Those  theories  which  take  their  starting-point  in  the 
physical  productivity  of  capital,  but  do  not  regard  it  as  self- 
evident  that  quantity  of  products  should  be  bound  up  with 
surplus   in   value,   and    accordingly   consider   it   necessary  to 
pursue   their   explanation   into   the   sphere   of   value,  I  shall 
call  the  Indirect  Productivity  theories.     They  are  distinguished 
by  the  fact  that,  to  the  assertion  and  illustration  of  the  pro- 
ductive power  of  capital,  they  add  a  more  or  less  successful 
line  of  argument  to  prove  that  this   productive  power  must 
lead  (and  why  it  must  lead)  to  the  existence  of  a  surplus 
value  which  falls  to  the  capitalist. 

3.  From    these    latter,   finally,  branches   off   a    group   of 
theories    which,    like    the    others,    connect    themselves    with 
physical  productivity,  but  lay  the  emphasis  of  their  explana- 
tion on  the  independent  existence,  efficiency,  and  sacrifice  of 
the  uses  of  capital.     These  I  shall  call  the  Use  theories.      In 
the  productive  power  of  capital  they  do  certainly  see  a  condition 
of  surplus  value,  but  not  the  principal  cause  of  its  existence. 
As  then  they  do  not  altogether  merit  the  name  of  productivity 
theories,  I  prefer  to  treat  them  separately,  and  devote  to  them 
a  separate  chapter. 


CHAPTER  II 

THE   NAIVE    PRODUCTIVITY   THEORIES 

THE  founder  of  the  Naive  Productivity  theories  is  J.  B.  Say. 

It  is  one  of  the  most  unsatisfactory  parts  of  our  task  to 
state  what  are  Say's  views  on  the  origin  of  interest.  He  is  a 
master  of  polished  and  rounded  sentences,  and  understands 
very  well  how  to  give  all  the  appearance  of  clearness  to  his 
thoughts.  But,  as  a  matter  of  fact,  he  entirely  fails  to  give 
definite  and  sharp  expression  to  these  thoughts,  and  the 
scattered  observations  which  contain  his  interest  theory 
exhibit,  unfortunately,  no  trifling  amount  of  contradiction. 

After  careful  consideration  it  seems  to  me  impossible  to 
interpret  these  observations  as  the  outcome  of  one  theory,  which 
the  writer  had  in  his  mind.  Say  hesitates  between  two  theories ; 
he  makes  neither  of  them  particularly  clear ;  but  all  the  same 
the  two  •  are  distinguishable.  One  of  them  is  essentially  a 
Naive  Productivity  theory ;  the  other  contains  the  first  germs 
of  the  Use  theories.  Thus,  notwithstanding  the  obscurity  of 
his  views,  Say  takes  a  prominent  position  in  the  history  of 
interest  theories.  He  forms  a  kind  of  node  from  which  spring 
two  of  the  most  important  theoretical  branches  of  our  subject. 

Of  Say's  two  chief  works,  the  TraiU  d' Economic  Politique 1 
and  the  Cours  Complet  d' Economic  Politique  Pratique,2  it  is  on  the 
former  that  we  must  rely  almost  exclusively  for  a  statement  of 
his  views.  The  Cours  Complet  avoids  suggestive  expressions 
almost  entirely. 

According  to  Say  all  goods  come  into  existence  through 
the  co-operation  of  three  factors — nature  (agents  naturels), 

1  Published  1803.     I  quote  from  the  seventh  edition,  Paris.     Guillaumin  and 
Co.,  1861.  2  Paris,  1828-29. 


CHAP,  ii  /.  B.  SA  Y  1*21 

capital,  and  human  labour  power  (faeultt  industri&lle). 
These  factors  appear  as  the  productive  funds  from  which  all 
the  wealth  of  a  nation  springs,  and  constitute  its  fortune} 
Goods,  however,  do  not  come  into  existence  directly  from  these 
funds.  Each  fund  produces,  first  of  all,  productive  services, 
and  from  these  services  come  the  actual  products. 

The  productive  services  consist  in  an  activity  (action)  or 
labour  (travail)  of  the  fund.  The  industrial  fund  renders  its 
services  through  the  labour  of  the  producing  man ;  nature 
renders  hers  through  the  activity  of  natural  powers,  the  work 
of  the  soil,  the  air,  the  water,  the  sun,  etc.2  But  when  we 
come  to  the  productive  services  of  capital,  and  ask  how  they 
are  to  be  represented,  the  answer  is  less  distinctly  given.  On 
one  occasion  in  the  Traitthe  says  vaguely  enough  :  "  It  (capital) 
must,  so  to  speak,  work  along  with  human  activity,  and  it  is 
this  co-operation  that  I  call  the  productive  service  of  capital." 3 
He  promises,  at  the  same  time,  to  give  a  more  exact  exposi- 
tion later  on  of  the  productive  working  of  capital,  but  in 
fulfilling  this  promise  he  limits  himself  to  describing  the 
transformations  which  capital  undergoes  in  production.4  Nor 
does  the  Cours  Complet  give  any  satisfactory  idea  of  the  labour 
of  capital.  It  simply  says,  capital  is  set  to  work  when  one 
employs  it  in  productive  operations  (On  fait  travailler  un 
capital  lorsqu'un  I'emploie  dans  des  operations  productifs),  i.  p. 
239.  We  learn  only  indirectly,  from  the  comparisons  he 
is  continually  drawing,  that  Say  thinks  of  the  labour  of  capital 
as  being  entirely  of  the  same  nature  as  the  labour  of  man  and 
of  natural  powers.  We  shall  soon  see  the  evil  results  of 
the  vague  manner  in  which  Say  applies  the  ambiguous  word 
"  service  "  to  the  co-operation  of  capital. 

There  are  certain  natural  agents  that  do  not  become  private 
property,  and  these  render  their  productive  services  gratuitously 
— the  sea,  wind,  physical  and  chemical  changes  of  matter,  etc. 
The  services  of  the  other  factors — human  labour-power,  capital, 
and  appropriated  natural  agents  (especially  land) — must  be 
purchased  from  the  persons  who  own  them.  The  payment 
comes  out  of  the  value  of  the  goods  produced  by  these  services, 
and  this  value  is  divided  out  among  all  those  who  have 

1  Cours,  i.  p.  234,  etc.  2  TraiU,  p.  68,  etc. 

Book  i.  iii.  p.  67.  4  Book  i.  chap.  x. 


122  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

co-operated  in  its  production  by  contributing  tbe  productive 
services  of  their  respective  funds.  The  proportion  in  which 
this  value  is  divided  out  is  determined  entirely  by  the  relation 
of  the  supply  of  and  demand  for  the  several  kinds  of  services. 
The  function  of  distributing  is  performed  by  the  undertaker, 
who  buys  the  services  necessary  to  the  production,  and  pays 
for  them  according  to  the  state  of  the  market.  In  this  way 
the  '  productive  services  receive  a  value,  and  this  value  is  to 
be  clearly  distinguished  from  the  value  of  the  fund  itself  out 
of  which  they  come.1 

Now  these  services  form  the  true  income  (rdvenu)  of  their 
owners.  They  are  what  a  fund  actually  yields  to  its  owner. 
If  he  sells  them,  or,  by  way  of  production,  changes  them  into 
products,  it  is  only  a  change  of  form  undergone  by  the  income. 

But  all  income  is  of  three  kinds,  corresponding  to  the 
triplicity  of  the  productive  services;  it  is  partly  income  of 
labour,  (profit  de  Vindiistrie),  partly  land-rent  (profit  du  fonds 
de  terre),  partly  profit  on  capital  (profit  or  rtfvenu  du  capital). 
Between  all  three  branches  of  income  the  analogy  is  as  com- 
plete as  it  is  between  the  different  categories  of  productive 
service.2  Each  represents  the  price  of  a  productive  service, 
which  the  undertaker  uses  to  create  a  product. 

In  this  Say  has  given  a  very  plausible  explanation  of 
profit.  Capital  renders  productive  services ;  the  owner  must 
be  paid  for  these;  the  payment  is  profit.  This  plausibility 
is  still  further  heightened  by  Say's  favourite  method  of  sup- 
porting his  argument  by  the  obvious  comparison  of  interest 
with  wage.  Capital  works  just  as  man  does ;  its  labour  must 
receive  its  reward  just  as  man's  labour  does ;  interest  on 
capital  is  a  faithful  copy  of  wages  for  labour. 

When  we  go  deeper,  however,  the  difficulties  begin,  and 
also  the  contradictions. 

If  the  productive  services  of  capital  are  to  be  paid  by  an 
amount  of  value  taken  out  of  the  value  of  the  product,  it  is 
above  all  necessary  that  there  be  an  amount  of  value  in  the 
product  available  for  that  purpose.  The  question  immediately 
forces  itself  on  us — and  it  is  a  question  to  which  in  any  case 
the  interest  theory  is  bound  to  give  a  decisive  answer — Why 
is  there  always  that  amount  of  value  ?  To  put  it  concretely, 

1  Traitt,  pp.  72,  343,  etc.  2  Cours,  iv.  p.  64. 


CHAP,  ii  SAY  12 J 

Where  capital  has  co-operated  in  the  making  of  a  product, 
why  does  that  product  normally  possess  so  much  value  that, 
after  the  other  co-operating  productive  services,  labour  and  use 
of  land,  are  paid  for  at  the  market  price,  there  remains  over 
enough  value  to  pay  for  the  services  of  capital  —  enough, 
indeed,  to  pay  these  services  in  direct  proportion  to  the  amount 
and  the  duration  of  the  employment  of  capital  ? 

Suppose  a  commodity  requires  for  its  production  labour 
and  use  of  laud  to  the  value  of  £100,  and  suppose  that  it 
takes  so  long  to  make  the  commodity  that  the  capital  advanced 
to  purchase  those  services  (in  this  case  £100)  is  not  re- 
placed for  a  year,  why  is  the  commodity  worth,  not  £100,  but 
more — say  £105  ?  And  suppose  another  commodity  has  cost 
exactly  the  same  amount  for  labour  and  use  of  land,  but  takes 
twice  as  long  to  make,  why  is  it  worth,  not  £100,  nor  £105, 
but  £110 — that  being  the  sum  with  which  it  is  possible 
adequately  to  pay  for  the  productive  services  of  the  £100  of 
capital  over  two  years  ? l 

It  will  be  easily  seen  that  this  is  a  way  of  putting  the 
question  of  surplus  value  accommodated  to  Say's  theory,  and 
that  it  goes  to  the  very  heart  of  the  interest  problem.  So  far 
as  Say  has  yet  gone,  the  real  problem  has  not  been  even 
touched,  and  we  have  yet  to  find  what  his  solution  is. 

When  we  ask  what  ground  Say  gives  for  the  existence  of 
this  surplus  value,  we  find  that  he  does  not  express  himself 
with  the  distinctness  one  could  wish.  His  remarks  may  be 
divided  into  two  groups,  pretty  sharply  opposed  to  each  other. 

In  one  group  Say  ascribes  to  capital  a  direct  power  of 
.creating  value ;  value  exists  because  capital  has  created  it, 
and  the  productive  services  of  capital  are  remunerated  because 
the  surplus  value  necessary  for  this  purpose  is  created.  Here, 
then,  the  payment  for  the  productive  services  of  capital  is  the 
result  of  the  existence  of  surplus  value. 

In  the  second  group  Say  exactly  transposes  the  causal 
relation,  by  representing  the  payment  of  the  services  of  capital 
as  the  cause,  as  the  reason  for  the  existence  of  surplus  value. 
Products  have  value  because,  and  only  Because,  the  owners  of 

1  In  this  illustration,  besides  the  expenditure  for  labour  and  use  of  land,  I 
do  not  introduce  any  separate  expenditure  for  substance  of  capital  consumed, 
because,  according  to  Say,  that  entirely  resolves  itself  into  expenditure  for 
elementary  productive  services. 


124  THE  NAIVE  PRODUCTIVITY  THEORIES        BOOK  n 

the  productive  services  irom  which  they  come  obtain  payment ; 
and  products  have  a  value  high  enough  to  leave  over  a  profit 
for  capital,  because  the  co-operation  of  capital  is  not  to  be  had 
for  nothing. 

Omitting  the  numerous  passages  where  Say  speaks  in 
a  general  way  of  a  facultt  productive  and  a  pouvoir  productif 
of  capital,  there  falls  within  the  first  group  a  controversial 
note  in  the  fourth  chapter  of  the  first  book  of  his  Traitt 
(p.  71).  He  has  been  arguing  against  Adam  Smith,  who,  he 
says,  has  mistaken  the  productive  power  of  capital  when 
he  ascribes  the  value  created  by  means  of  capital  to  the  labour 
by  which  capital  itself  was  originally  produced.  Take  the 
case  of  an  oil  mill.  "  Smith  is  mistaken,"  he  says.  "  The 
product  of  this  preceding  labour  is,  if  you  will,  the  value  of 
the  mill  itself;  but  the  value  that  is  daily  produced  by  the 
mill  is  another  and  a  quite  new  value ;  just  in  the  same  way 
as  the  rented  use  of  a  piece  of  ground  is  a  separate  value  from 
that  of  the  piece  of  ground  itself,  and  is  a  value  which  may 
be  consumed  without  diminishing  the  value  of  the  ground." 
And  then  he  goes  on :  "  If  capital  had  not  in  itself  a  pro- 
ductive power,  independent  of  the  labour  that  has  created  it, 
how  could  it  be  that  a  capital,  to  all  eternity,  produces  an 
income  independent  of  the  profit  of  the  industrial  activity 
which  employs  it  ? "  Capital,  therefore,  creates  value,  and  its 
capability  of  doing  so  is  the  cause  of  profit.  Similarly  in 
another  place :  "  The  capital  employed  pays  the  services 
rendered,  and  the  services  rendered  produce  the  value  which 
replaces  the  capital  employed."  * 

In  the  second  group  I  place  first  an  expression  which  does 
not  indeed  directly  refer  to  profit,  but  must  by  analogy  be 
applied  to  it.  "  Those  natural  powers,"  says  Say,  "  which  are 
susceptible  of  appropriation  become  productive  funds  of  value 
because  they  do  not  give  their  co-operation  without  payment." 2 
Further,  he  constantly  makes  the  price  of  products  depend 
on  the  height  of  the  remuneration  paid  to  the  productive 
services  which  have  co-operated  in  their  making.  "  A  product 
will  therefore  be  dearer  just  in  proportion  as  its  production 
requires,  not  only  more  productive  services,  but  productive 
services  that  are  more  highly  compensated.  .  .  .  The  more 

1  Book  ii.  chap.  viii.  §  2,  p.  395,  note  1.  2  Book  i.  chap.  iv.  at  end. 


CHAP,  ii  SA  Y  125 

lively  the  need  that  the  consumers  feel  for  the  enjoyment  of 
the  product,  the  more  abuudait  the  means  of  payment  they 
possess ;  and  the  higher  the  compensation  that  the  sellers  are 
able  to  demand  for  the  productive  services,  the  higher  will  go 
the  price." l 

Finally,  there  is  a  decided  expression  of  opinion  in  the 
beginning  of  the  eighth  chapter  of  book  ii.  on  the  subject 
of  profit.  "  The  impossibility  of  obtaining  a  product  without 
the  co-operation  of  a  capital  compels  the  consumers  to  pay  for 
that  product  a  price  sufficient  to  allow  the  undertaker,  who 
takes  on  himself  the  work  of  producing,  to  buy  the  services  of 
that  necessary  instrument."  This  is  in  direct  contradiction  to 
the  passage  first  quoted,  where  the  payment  of  the  capitalist 
was  explained  by  the  existence  of  the  surplus  value  "  created," 
for  here  the  existence  of  the  surplus  value  is  explained  by 
the  unavoidable  payment  of  the  capitalist.  It  is  in  harmony 
with  this  latter  conception,  too,  that  Say  conceives  of  profit 
as  a  constituent  of  the  costs  of  production.2 

Contradictions  like  these  are  the  perfectly  natural  result 
of  the  uncertainty  shown  by  Say  in  his  whole  theory  of  value. 
He  falls  into  Adam  Smith  and  Ricardo's  theory  of  costs  quite  as 
often  as  he  argues  against  it.  It  is  very  significant  of  this 
uncertainty  that  Say  in  the  passages  already  quoted  (Traite,  pp. 
315,  316)  derives  the  value  of  products  from  the  value  of  the 
services  which  produce  them ;  and  at  another  time  (Traite,  p. 
338)  he  does  quite  the  opposite,  in  deriving  the  value  of  the 
productive  funds  from  the  value  of  the  products  which  are 
obtained  from  them  (Leur  valevr — dcs  fonds  productifs — vient 
done  dc  la  valeur  du  produit  qui  pent  en  sortir), — an  important 
passage  to  which  we  shall  return  later. 

What  has  been  said  is  perhaps  sufficient  to  show  that  no 
injustice  is  done  to  Say  in  assuming  that  he  had  not  himself 
any  clear  view  as  to  the  ultimate  ground  of  interest,  but 
hesitated  between  two  opinions.  According  to  the  one  opinion 
interest  comes  into  existence  because  capital  produces  it ;  ac- 
cording to  the  other,  because  "  productive  services  of  capital " 
are  a  constituent  of  cost,  and  require  compensation. 

Between  the  two  views  there  is  a  strong  and  real  antag- 
onism,— stronger  than  one  would  perhaps  think  at  first  sight. 

1  Book  ii.  chap.  i.  p.  315,  etc.  -  Traite,  p.  395. 


126  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

The  one  treats  the  phenomenon  of  interest  as  above  all  a 
problem  of  production ;  the  other  treats  it  as  a  problem  of 
distribution.  The  one  finishes  its  explanation  by  referring 
simply  to  a  fact  of  production :  capital  produces  surplus  value, 
therefore  there  is  surplus  value,  and  there  is  no  occasion  for 
further  question.  The  other  theory  only  rests  by  the  way  on 
the  co-operation  of  capital  in  production,  which  it  of  course 
presupposes.  It  finds  its  centre  of  gravity,  however,  in  the 
social  formations  of  value  aud  price.  By  his  first  view,  Say 
stands  in  the  rank  of  the  pure  Productivity  theorists;  by 
his  second  he  opens  the  series  of  the  very  interesting  and 
important  Use  theories. 

Following  the  plan  of  statement  indicated,  I  pass  over 
Say's  Use  theory  in  the  meantime,  to  consider  the  development 
taken  by  the  Naive  Productivity  theory  after  him. 

Of  development  in  the  strict  sense  of  the  word  we  need 
scarcely  speak.  The  most  conspicuous  feature  of  the  Naive 
Productivity  theories  is  the  silence  in  which  they  pass  over 
the  causal  relation  between  the  productive  power  of  capital 
and  its  asserted  effect,  the  "  surplus  value "  of  products. 
Thus  there  is  no  substance  to  develop,  and  the  historical 
course  of  these  theories,  therefore,  is  nothing  but  a  somewhat 
monotonous  series  of  variations  on  the  simple  idea  that  capital 
produces  surplus  value.  No  true  development  is  to  be  looked 
for  till  the  succeeding  stage — that  of  the  Indirect  Productivity 
theories. 

The  Naive  Productivity  theory  has  found  most  of  its  ad- 
herents in  Germany,  and  a  few  in  France  and  Italy.  The 
English  economists  whose  bent  does  not  seem  favourable, 
generally  speaking,  to  the  theory  of  productivity,  and  who, 
moreover,  possessed  an  Indirect  Productivity  theory  ever  since 
the  time  of  Lord  Lauderdale,  have  entirely  passed  over  the 
naive  phase. 

In  Germany  Say's  catchword,  the  productivity  of  capital, 
quickly  won  acceptance.  Although,  in  the  first  instance,  no 
systematic  interest  theory  was  founded  on  it,  it  soon  became 
customary  to  recognise  capital  as  a  third  and  independent 
factor  in  production,  alongside  of  nature  and  labour,  and  to 
put  the  three  branches  of  income — rent  of  land,  wages  of 


CHAP,  ii  SCHON,  RIEDEL  127 

labour,  and  interest  on  capital — in  explanatory  connection 
with  the  three  factors  of  production.  A  few  writers  who  do 
so  in  an  undecided  kind  of  wayv  and  add  ideas  taken  from 
theories  which  trace  interest  to  a  different  origin,  have  been 
already  mentioned  in  the  chapter  on  the  Colourless  theories. 

But  it  was  not  long  before  Say's  conception  was  applied  with 
more  definiteness  to  the  explanation  of  interest.  The  first  to  do 
so  was  Schon.1  The  explanation  he  gives  is  very  short.  He 
first  claims  for  capital,  in  fairly  modest  words,  the  character  of 
being  a  "third  and  distinct  source  of  wealth,  although  an 
indirect  source"  (p.  47).  But  at  the  same  time  he  considers  it 
proved  and  evident  that  capital  must  produce  a  "rent."  For 
"  the  produce  belongs  originally  to  those  who  co-operated 
towards  its  making"  (p.  82),  and  "it  is  clear  that  the  national 
produce  must  set  aside  as  many  distinct  rents  as  there  are 
categories  of  productive  powers  and  instruments"  (p.  87). 
Any  further  proof  is,  very  characteristically,  not  considered 
necessary.  Even  the  opportunity  he  gets  when  attacking 
Adam  Smith  does  not  draw  from  him  any  more  detailed  reason- 
ing for  his  own  view.  He  contents  himself  with  blaming 
Adam  Smith,  in  general  terms,  for  only  considering  the  im- 
mediate workers  as  taking  part  in  production,  and  overlooking 
the  productive  character  of  capital  and  land — an  oversight 
which  led  him  into  the  mistake  of  thinking  that  the  rent  of 
capital  has  its  cause  in  a  curtailment  of  the  wages  of  labour 
(p.  85). 

Eiedel  gives  the  new  doctrine  with  more  detail  and  with 
greater  distinctness.2  He  devotes  to  its  statement  a  special 
paragraph  to  which  he  gives  the  title  "  Productivity  of  Capital," 
and  in  the  course  of  this  he  expresses  himself  as  follows  :  "  The 
productivity  which  capital  when  employed  universally  possesses 
is  manifest  on  observation  of  the  fact  that  material  values 
which  have  been  employed,  with  a  view  to  production,  in 
aiding  nature  and  labour,  are,  as  a  rule,  not  only  replaced,  but 
assist  towards  a  surplus  of  material  values,  which  surplus  could 
not  be  brought  into  existence  without  them.  .  .  .  The  product 
of  capital  is  to  be  regarded  as  that  which  in  any  case  results 
from  an  employment  of  capital  towards  the  origination  of 

1  Neue  Untcrsiichung  dcr  National-Ockonomie,  Stuttgart  and  Tubingen,  1835. 
2  Nativnal-Oekonomie  odcr  Volkswirthschaft,  1838. 


128  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

material  values,  after  deduction  of  the  value  of  that  assistance 
which  nature  and  labour  afford  to  the  employment  of  capital.  .  .  . 
It  is  always  incorrect  to  ascribe  the  product  of  capital  to  the 
working  forces  of  nature  or  labour  which  the  capital  needs  in 
order  that  it  may  be  employed.  Capital  is  an  independent 
force,  as  nature  and  labour  are,  and  in  most  cases  does  not 
need  them  more  than  they  need  it"  (i.  §  366). 

It  is  very  significant  that  in  this  passage  Eiedel  finds  the 
productive  power  of  capital  "manifest  on  observation"  of 
excess  of  value.  In  his  view  it  is  so  self-evident  that  surplus 
value  and  productive  power  belong  inseparably  to  each  other, 
that  from  the  fact  of  surplus  value  he  argues  back  to  the 
productive  power  of  capital  as  its  only  conceivable  cause.  We 
need  not,  therefore,  be  surprised  that  Eiedel  considers  that 
the  existence  of  natural  interest  is  amply  accounted  for  when 
he  simply  mentions  the  catchword,  "  productivity  of  capital," 
and  does  not  give  any  accurate  explanation  of  it. 

But  the  writer  who  has  done  more  than  any  other  to 
popularise  the  Productivity  theory  in  Germany  is  Wilhelm 
Roscher. 

This  distinguished  economist,  whose  most  signal  merits  do 
not,  I  admit,  lie  in  the  sphere  of  acute  theoretical  research, 
has  unfortunately  given  but  little  care  to  the  systematic 
working  out  of  the  doctrine  of  interest.  This  shows  itself, 
even  on  the  surface,  in  many  remarkable  misconceptions  and 
incongruities.  Thus  in  §  179  of  his  great. work1  he  defines 
interest  as  the  price  of  the  uses  of  capital,  although  evidently 
this  definition  only  applies  to  contract  and  not  to  "  natural " 
interest,  which  latter,  however,  Eoscher  in  the  same  paragraph 
calls  a  kind  of  interest  on  capital.  Thus  also  in  §  148  he 
explains  that  the  original  amount  of  all  branches  of  income 
"  evidently "  determines  the  contract  amount  of  the  same ; 
therefore  also  the  amount  of  the  natural  interest  on  capital 
determines  the  amount  of  the  contract  interest.  Notwithstand- 
ing this,  in  §  183,  when  discussing  the  height  of  the  interest 
rate,  he  makes  its  standard  not  natural  interest  but  loan 
interest.  He  makes  the  price  of  the  uses  of  capital  depend 
on  supply  and  demand  "  specially  for  circulating  capitals " ; 
the  demand  again  depends  on  the  number  and  solvability 

1  Grundlagen  der  National-Ockonomie,  tenth  edition,  Stuttgart,  1873. 


CHAP,  ii  ROSCHER  129 

of  the  borrowers,  specially  the  non- capitalists,  such  as  land- 
owners and  labourers.  So  that  from  Koscher's  statement  it 
seems  as  if  the  height  of  interest  were  first  determined  by 
the  relations  of  contract  interest  on  the  loan  market,  and  then 
transferred  to  natural  interest,  in  virtue  of  the  law  of  equal- 
isation of  interest  over  all  kinds  of  employment;  while  ad- 
mittedly the  very  opposite  relation  holds  good.  Finally,  in 
the  theoretic  part  of  his  researches  Roscher  does  not  take  up 
the  most  important  question  in  point  of  theory,  the  origin  of 
interest,  but  touches  on  it  only  slightly  in  his  practical  sup- 
plement on  the  politics  of  interest,  where  he  discusses  its 
legitimacy. 

To  judge  by  the  contents  of  the  following  observations, 
which  are  a  medley  of  the  Naive  Productivity  theory  and  of 
Senior's  Abstinence  theory,  Roscher  is  an  eclectic.  In  §  189 
he  ascribes  to  capital  "  real  productivity,"  and  in  the  note  to 
it  he  praises  the  Greek  expression  TO/CO?,  the  born,  as  "  very 
appropriate."  In  a  later  note  he  argues  warmly  against  Marx, 
and  his  "  latest  relapse  into  the  old  heresy  of  the  non-pro- 
ductivity of  capital";  adducing,  as  convincing  proof  of  its 
productivity,  such  things  as  the  increase  in  value  of  cigars, 
wine,  cheese,  etc.,  "  which,  through  simple  postponement  of 
consumption,  may  obtain  a  considerably  higher  value — both 
use  value  and  exchange  value — without  the  slightest  additional 
labour."  In  the  same  paragraph  he  illustrates  this  by  the 
well-known  example  of  the  fisher  who  first  catches  three  fish 
a  day  by  hand,  then  saves  up  a  stock  of  100  fish,  makes  a 
boat  and  net  while  living  on  his  stock,  and  thereafter  catches 
thirty  fish  a  day  by  the  assistance  of  this  capital. 

In  all  these  instances  Roscher's  view  evidently  amounts  to 
this,  that  capital  directly  produces  surplus  value  by  its  own 
peculiar  productive  power ;  and  he  does  not  trouble  himself  to 
look  for  any  intricate  explanation  of  its  origin.  I  cannot, 
therefore,  avoid  classing  him  among  the  Naive  Productivity 
theorists. 

As  already  pointed  out,  however,  he  has  not  kept  exclu- 
sively to  this  view,  but  has  formally  and  substantially  co-ordinated 
the  Abstinence  theory  with  it.  He  names  as  a  second  and 
"  undoubted  "  foundation  of  interest  the  "  real  sacrifice  which 
resides  in  abstinence  from  the  personal  enjoyment  of  capital " ; 

K 


130  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  H 

he  calls  special  attention  to  the  fact  that,  in  the  fixing 
of  the  price  for  the  use  of  the  boat,  the  150  days' 
privatiou  of  the  fisherman  who  saved  w-ii.d  be  a  weighty 
consideration ;  and  he  says  that  interest  might  be  called  a 
payment  for  abstinence  in  the  same  way  as  the  wage  of  labour 
is  called  a  payment  for  industry.  In  other  respects  too  there 
are  many  ill  concealed  contradictions.  Among  other  things, 
it  agrees  very  badly  with  the  productive  power  of  capital 
which  Eoscher  assumes  to  be  self-evident,  when  in  §  183  he 
declares  the  "use  value  of  capital  to  be  in  most  cases 
synonymous  with  the  skill  of  the  labourer  and  the  richness  of 
the  natural  powers  which  are  connected  with  it" 

Evidently  the  authority  which  the  respected  name  of 
Koscher  enjoys  among  German  economists  has  stood  him  in 
good  stead  with  his  interest  theory.  If  what  I  have  said  be 
correct,  his  theory  has  a  very  modest  claim  indeed  to  the 
cardinal  theoretic  virtues  of  unity,  logic,  and  throughness ;  yet 
it  has  met  with  acceptance  and  imitation  in  many  quarters.1 

In  France  Say's  Productivity  theory  obtained  as  much 
popularity  as  in  Germany.  It  became  unmistakably  the 
fashionable  theory,  and  even  the  violent  attacks  made  on  it 
after  1840  by  the  socialists,  especially  by  Proudhon,  did  but 
little  to  prevent  its  spread.  It  is  singular,  however,  that  it 
was  seldom  accepted  simpliciter  by  the  French  writers. 
Almost  all. who  adopted  it  added  on  elements  taken  from  one 
or  even  more  theories  inconsistent  with  it.  This  was  the  case — 
to  name  only  a  few  of  the  most  influential  writers — with  Rossi 
and  Molinari,  with  Josef  Gamier,  and  quite  lately  with 
Cauwes  and  Leroy-Beaulieu. 

1  I  venture  to  pass  over  a  goodly  number  of  German  writers  who  since  Roscher'a 
time  have  simply  repeated  the  doctrine  of  the  productive  power  of  capital,  without 
adding  anything  to  it.  Of  these  Friedrich  Kleinwachter  may  be  mentioned  as 
one  who  has  worked  at  the  doctrine,  if  not  with  much  more  success,  at  least 
with  greater  thoroughness  and  care.  See  "Beitrag  zum  Lehre  vom  Eapital" 
(Hildebrand's  Jahrbucher,  vol.  ix.  1867,  pp.  310-326,  369-421)  and  his  con- 
tribution to  Schonberg's  Handbuch.  In  the  same  category  may  be  put  Schulze- 
Delitzsch.  For  his  views,  which,  like  Roscher's,  are  somewhat  eclectic,  and  not 
free  from  contradictions,  see  his  Kapitel  zu  einem  Deutschen  Arbeiterkatechismus, 
Leipzig,  1863,  p.  24. 

In  the  German  edition  of  1884  there  are  three  pages  of  criticism  on  Klein- 
wachter, which,  by  desire  of  Professor  Bohm-Bawerk,  I  here  omit. — W.  S. 


CHAP,  ii  LEROY-BEAULIEU,  SCIALOJA  131 

Since  the  Productivity  theory  experienced  no  essential 
change  at  the  hands  of  these  economists,  I  need  not  go  into 
any  detailed  statement  of  their  views,  the  less  so  that  we  shall 
meet  the  most  prominent  of  them  in  a  later  chapter  among  the 
eclectics.  I  shall  mention  only  one  peculiarly  strong  statement 
of  the  last-named  writer,  for  the  purpose  of  showing  how 
great  a  hold  the  Productivity  theory  has  in  French  economics 
at  the  present  day,  in  face  of  all  the  socialist  criticism.  In 
his  Essai  sur  la  Repartition  des  Richesscs,  the  most  important 
French  monograph  on  the  distribution  of  wealth — a  book  which 
has  passed  through  two  editions  within  two  years — Leroy- 
Beaulieu  writes, "  Capital  begets  capital;  that  is  beyond  question." 
And  a  little  later  he  guards  himself  against  being  supposed  to 
mean  that  capital  begets  interest  only  in  some  legal  sense, 
or  through  the  arbitrariness  of  laws :  "  It  is  so  naturally  and 
materially ;  in  this  case  laws  have  only  copied  nature "  (pp. 
•234,  239). 

From  the  Italian  literature  of  our  subject  I  shall,  finally, 
instead  of  a  number  of  writers,  only  mention  one ;  but  his 
method  of  treatment,  with  its  simplicity  in  form  and  its 
obscurity  in  substance,  may  be  taken  as  typical  of  the  Naive 
Productivity  theory — the  much  read  Scialoja.1 

This  writer  states  that  the  factors  of  production,  among 
which  he  reckons  capital  (p.  39),  share  with,  or  transfer  to 
their  products  their  own  "  virtual "  or  "  potential "  value, 
which  rests  on  their  capacity  towards  production ;  and  that, 
further,  the  share  which  each  factor  takes  in  the  production 
of  value  is  itself  the  standard  for  the  division  of  the  product 
among  the  co-operating  factors.  Thus  in  the  distribution 
each  factor  receives  as  much  value  as  it  has  created ;  if, 
indeed,  this  share  may  not  be  fixed  a  priori  in  figures  (p. 
100).  In  conformity  with  this  idea  he  then  declares  natural 
interest  to  be  that  "  portion  "  of  the  total  profit  of  undertaking 
"  which  represents  the  productive  activity  of  capital  during 
the  period  of  the  production  "  (p.  125). 

In  turning  now  from  statement  to  criticism,  I  must  redis- 
tinguish  between  these  two  branches  of  the  Naive  Productivity 
theory  which  I  put  together  for  convenience  of  historical 

1  PrincijA  della  Economia  Sociale,  Naples,  1840. 


132  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

statement.  It  has  been  shown  that  all  the  views  already 
examined  agree  in  making  surplus  value  result  from  the  pro- 
ductive power  of  capital,  without  showing  any  reason  why 
it  should  be  so.  But,  as  I  have  shown  in  last  chapter, 
beneath  this  agreement  in  expression  there  may  lie  two 
essentially  different  ideas.  The  productive  power  of  capital 
referred  to  may  be  understood,  in  the  literal  sense,  as  Value 
Productivity,  as  a  capacity  of  capital  to  produce  value  directly; 
or  it  may  be  understood  as  Physical  Productivity,  a  capacity 
of  capital  to  produce  a  great  quantity  of  goods  or  a  special 
quality  of  goods,  without  further  explanation  of  the  existence 
of  surplus  value,  it  being  regarded  as  perfectly  self-evident 
that  the  great  quantity  of  goods,  or  the  special  quality  of 
goods,  must  contain  a  surplus  of  value. 

In  stating  their  doctrine  most  of  the  Naive  Productivity 
theorists  are  so  sparing  of  words  that  it  is  more  easy  to 
say  what  they  may  have  thought  than  what  they  actually 
did  think ;  and  often  we  can  only  conjecture  whether  a  writer 
holds  the  one  view  or  the  other.  Thus  Say's  "productive 
power"  equally  admits  of  both  interpretations.  It  is  the 
same  with  Eiedel's  "productivity."  Scialoja  and  Klemwachter 
seem  to  incline  more  to  the  former;  Eoscher,  in  his  illustra- 
tion of  the  abundant  take  of  fish,  rather  to  the  latter.  In 
any  case  it  is  not  of  much  importance  to  determine  which 
of  these  views  each  writer  holds :  if  we  submit  both  views 
to  criticism,  each  will  get  his  due. 

The  Naive  Productivity  theory,  in  both  its  forms,  I  con- 
sider very  far  from  satisfying  the  demands,  which  we  may 
reasonably  make  on  a  theory  purporting  to  be  a  scientific 
explanation  of  interest. 

After  the  sharp  critical  attacks  that  have  been  directed 
against  it  from  the  side  of  the  socialistic  and  the  "socio- 
political" school,  its  inadequacy  has  been  so  generally  felt, 
at  least  in  German  science,  that  in  undertaking  to  prove  this 
judgment  I  am  almost  afraid  I  may  be  thrashing  a  dead  horse. 
Still  it  is  a  duty  which  I  cannot  shirk.  The  theories  of 
which  we  are  speaking  have  been  treated  with  such  a  lack 
of  thoroughness  and  such  hastiness  of  judgment  that,  as  critic, 
I  must  at  least  avoid  a  similar  blunder.  But  my  chief 
reason  is  that  I  mean  to  attack  the  Naive  Productivity  theory 


CHAP,  ii  CRITICISM  133 

with  arguments  which  are  essentially  different  from  the  argu- 
ments of  socialistic   criticism,  and   seem  to  me  to  go   more 
nearly  to  the  heart  of  the  matter. 
To  begin  with  the  first  form. 

If  we  are  expected  to  believe  that  interest  owes  its 
existence  to  a  peculiar  power  in  capital  directed  to  the  creating 
of  value,  the  question  must  at  once  force  itself  upon  us, 
What  are  the  proofs  that  capital  actually  possesses  such  a 
power?  An  unproved  assurance  that  it  does  so  certainly 
cannot  offer  sufficient  foundation  for  a  serious  scientific  theory. 

If  we  run  through  the  writings  of  the  Naive  Productivity 
theorists,  we  shall  find  in  them  a  great  many  proofs  of  a 
physical  productivity,  but  almost  nothing  that  could  be  inter- 
preted as  an  attempt  to  prove  that  there  is  a  direct  value- 
creating  power  in  capital  They  assert  it,  but  they  take  no 
trouble  to  prove  it;  unless  the  fact  that  the  productive  em- 
ployment of  capital  is  regularly  followed  by  a  surplus  of  value 
be  advanced  as  a  kind  of  empirical  proof  of  the  power  of 
capital  to  produce  value.  Even  this,  however,  is  only  men- 
tioned very  cursorily.  It  is  perhaps  put  most  plainly  by 
Say,  when,  in  the  passage  above  quoted,  he  asks  how  capital 
could  to  all  eternity  produce  an  independent  income,  if  it  did 
not  possess  an  independent  productive  power ;  and  by  Eiedel 
when  he  "  recognises  "  the  productive  power  of  capital  in  the 
existence  of  surpluses  of  value. 

Now  what  is  the  worth  of  this  empirical  proof?  Does 
the  fact  that  capital  when  employed  is  regularly  followed 
by  the  appearance  of  a  surplus  in  value,  actually  contain  a 
sufficient  proof  that  capital  possesses  a  power  to  create  value  ? 

It  is  quite  certain  that  it  does  no  such  thing ;  no  more  than 
the  fact  that,  in  the  mountains  during  the  summer  months,  a 
rise  of  the  barometer  regularly  follows  the  appearance  of  snow 
is  a  sufficient  proof  that  a  magic  power  resides  in  the  summer 
snow  to  force  up  the  quicksilver — a  naive  theory  which  one 
may  sometimes  hear  from  the  lips  of  the  mountaineers. 

The  scientific  blunder  here  made  is  obvious.  A  mere 
hypothesis  is  taken  for  a  proved  fact.  In  both  cases  there  is, 
first  of  all,  a  certain  observed  connection  of  two  facts,  the 
cause  of  the  facts  being  still  unknown  and  being  object  of 


134  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

inquiry.  There  are  in  both  cases  a  great  many  conceivable 
causes  for  the  effect  in  question.  In  both  cases  accordingly 
a  great  many  hypotheses  might  be  put  forward  as  to  the 
actual  cause ;  and  it  is  only  one  among  many  possible  hy- 
potheses when  the  rising  barometer  is  accounted  for  by  a 
specific  power  of  the  summer  snow,  or  when  the  surplus 
value  of  products  of  capital  is  accounted  for  by  a  specific 
power  in  capital  to  create  value.  And  it  is  all  the  more 
a  mere  hypothesis  since  nothing  is  known  in  other  respects  as 
to  the  existence  of  the  "  powers  "  referred  to.  They  have  only 
been  postulated  for  the  purpose  of  explaining  the  phenomenon 
in  question. 

But  the  cases  we  have  compared  resemble  each  other  not 
only  in  being  examples  of  mere  hypotheses,  but  in  being 
examples  of  bad  hypotheses.  The  credibility  of  a  hypothesis 
depends  on  whether  it  finds  support  outside  the  state  of 
matters  which  has  suggested  it;  and,  particularly,  whether 
it  is  inherently  probable.  That  this  is  not  the  case  as  regards 
the  naive  hypothesis  of  the  mountaineer  is  well  known,  and 
therefore  no  educated  man  believes  in  the  story  that  the  rise 
of  the  column  of  quicksilver  is  caused  by  a  mysterious  power 
of  the  summer  snow.  But  it  is  no  better  with  the  hypothesis 
of  a  value-creating  power  in  capital.  On  the  one  hand  it  is 
supported  by  no  single  fact  of  importance  from  any  other 
quarter — it  is  an  entirely  unaccredited  hypothesis ;  and,  on 
the  other  hand,  it  contradicts  the  nature  of  things — it  is  an 
impossible  hypothesis. 

Literally  to  ascribe  to  capital  a  power  of  producing  value 
is  thoroughly  to  misunderstand  the  essential  nature  of  value, 
and  thoroughly  to  misunderstand  the  essential  nature  of 
production.  Value  is  not  produced,  and  cannot  be  produced. 
What  is  produced  is  never  anything  but  forms,  shapes  of 
material,  combinations  of  material ;  therefore  things,  goods. 
These  goods  can  of  course  be  goods  of  value,  but  they  do  not 
bring  value  with  them  ready  made,  as  something  inherent  that 
accompanies  production.  They  always  receive  it  first  from  out- 
side— from  the  wants  and  satisfactions  of  the  economic  world. 
Value  grows,  not  out  of  the  past  of  goods,  but  out  of  their 
future.  It  comes,  not  out  of  the  workshop  where  goods  come 
iato  existence,  but  out  of  the  wants  which  those  goods  will 


CHAP,  ii         CAPITAL  DOES  NOT  CREATE  VALUE  135 

satisfy.  Value  cannot  be  forged  like  a  hammer,  nor  woven  like 
a  sheet.  If  it  could,  our  industries  would  be  spared  those 
frightful  convulsions  we  call  crises,  which  have  no  other 
cause  than  that  quantities  of  products,  in  the  manufacture 
of  which  no  rule  of  art  was  omitted,  cannot  find  the  value 
expected.  What  production  ran  do  is  never  anything  more 
than  to  create  goods,  in  the  hope  that,  according  to  the 
anticipated  relations  of  demand  and  supply,  they  will  obtain 
value.  It  might  be  compared  to  the  action  of  the  bleacher. 
As  the  bleacher  lays  his  linsn  in  the  sunshine,  so  production 
puts  forth  its  activity  on  things  and  in  places  where  it  may 
expect  to  obtain  value  as  its  result.  But  it  no  more  creates 
value  than  the  bleacher  creates  the  sunshine. 

I  do  not  think  it  necessary  to  collect  more  positive  proofs 
in  support  of  my  proposition.  It  appears  to  me  too  self-evident 
to  require  them.  But  it  is  perhaps  well  to  defend  it  against 
some  considerations  that  at  first  sight — but  only  at  first  sight 
— seem  to  run  counter  to  it. 

Thus  the  familiar  fact  that  the  value  of  goods  stands  in  a 
certain  connection,  though  not  a  very  close  or  exact  connection, 
with  the  cost  of  their  production,  may  give  the  impression 
that  the  value  of  goods  comes  from  circumstances  of  their  pro- 
duction. But  it  must  not  be  forgotten  that  this  connection 
only  holds  under  certain  assumptions.  One  of  these  assump- 
tions is  usually  expressly  stated  in  formulating  the  law  that 
value  depends  on  cost  of  production;  while  the  other  is  usually 
tacitly  assumed — neither  of  them  having  anything  at  all  to  do 
with  production.  The  first  assumption  is  that  the  goods 
produced  are  useful ;  and  the  second  is  that,  as  compared  with 
the  demand  for  them,  they  are  scarce,  and  continue  scarce. 

Now  that  these  two  circumstances,  which  stand  so 
modestly  in  the  background  of  the  law  of  costs,  and  not  the 
costs  themselves,  are  the  real  and  ruling  determinants  of  value, 
may  be  very  simply  shown  by  the  following.  So  long  as 
costs  are  laid  out  in  the  production  of  things  which  are 
adequately  useful  and  scarce  —  so  long,  therefore,  as  the 
costs  themselves  are  in  harmony  with  the  usefulness  and 
scarcity  of  the  goods — so  long  do  they  remain  in  harmony  with 
their  value  also,  and  appear  to  regulate  it.  On  the  other 
hand,  so  far  as  costs  are  laid  out  on  things  which  are  not 


136  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

useful  enough  or  scarce  enough — as,  say,  in  the  making  of 
watches  which  will  not  go,  or  the  raising  of  timber  in  districts 
where  there  is  naturally  a  superfluity  of  wood,  or  the  making 
more  good  watches  than  people  want — the  value  no  longer 
covers  the  costs,  and  there  is  not  even  the  appearance  of  things 
deriving  their  value  from  the  circumstances  of  their  production. 

Another  plausible  objection  is  this.  We  produce,  it  may 
be,  in  the  first  instance,  goods  only.  But  since  without  the 
production  of  goods  there  would  be  no  value,  it  is  evident 
that  in  the  production  of  goods  we  bring  value  into  the  world 
also.  When  a  man  produces  goods  of  the  value  of  £1000,  it 
is  quite  evident  that  he  has  occasioned  the  existence  of  £1000 
of  value  which  would  never  have  existed  without  the  pro- 
duction; and  this  appears  to  be  a  palpable  proof  of  the 
correctness  of  the  proposition  that  value  also  comes  into 
existence  through  production. 

Certainly  this  proposition  is  so  far  correct,  but  in  a  quite 
different  sense  from  that  which  is  here  given  it.  It  is  correct 
in  the  sense  that  production  is  a  cause  of  value.  It  is  not 
correct  in  the  sense  that  production  is  the  cause  of  value — 
that  is  to  say,  it  is  not  correct  in  the  sense  that  the  complex 
of  causes  entirely  sufficient  to  account  for  the  existence  of 
value  is  to  be  found  in  the  circumstances  of  production. 

Between  these  two  senses  lies  a  very  great  distinction, 
which  may  be  better  illustrated  by  an  example.  If  a  corn-field 
is  turned  up  by  a  steam  plough,  it  is  indisputable  that  the 
steam  plough  is  one  cause  of  the  grain  produced,  and  at  the 
same  time  is  one  cause  of  the  value  of  the  grain  produced. 
But  it  is  quite  as  indisputable  that  the  emergence  of  value  on 
the  part  of  the  grain  is  very  far  from  being  fully  explained 
by  saying  that  the  steam  plough  has  produced  it.  One  cause 
of  the  existence  of  the  grain,  and  at  the  same  time  of  the 
value  of  the  grain,  was  certainly  the  sunshine.  But  if  the 
question  were  put  why  the  quarter  of  corn  possessed  a  value 
of  thirty  shillings,  would  anybody  think  it  an  adequate  answer 
to  say  that  the  sunshine  produced  the  value  ?  Or  when  the  old 
problem  is  put,  whether  ideas  are  innate  or  acquired,  who 
would  decide  that  they  were  innate  from  the  argument  that,  if 
man  were  not  born  there  would  be  no  ideas,  and  that,  conse- 
quently, there  is  no  doubt  that  birth  is  the  cause  of  the  ideas  ? 


CHAP,  ii         NOR  DOES  LABOUR  CREATE  VALUE  137 

And  now  to  apply  this  to  our  present  problem.  Our 
productivity  friends  are  wrong  because  they  over-estimate 
their  claim  to  be  right  If  they  had  been  content  to  speak 
of  a  value-creating  power  of  capital  in  the  sense  that  capital 
supplies  one  cause  of  the  emergence  of  value,  there  would 
have  been  nothing  to  object  to.  Next  to  nothing  indeed 
would  have  been  done  towards  explaining  surplus  value. 
It  would  only  be  stating  explicitly  what  scarcely  required 
to  be  stated  at  all ;  and  in  the  nature  of  things  our  theorists 
would  have  been  compelled  to  go  on  to  explain  the  other 
and  less  obvious  part -causes  of  surplus  value.  Instead  of 
that,  they  imagine  that  they  have  given  the  cause  of  the 
existence  of  value.  They  assume  that,  in  the  words,  "  Capital, 
in  virtue  of  its  productive  power,  creates  value  or  surplus 
value,"  they  have  given  such  a  conclusive  and  complete 
explanation  of  its  existence  that  no  further  explanation 
of  any  kind  is  needed,  and  in  this  they  are  grievously  mis- 
taken. 

But  from  what  has  been  said  another  important  applica- 
tion may  be  drawn,  and  I  give  it  here,  although  it  is  not 
directed  against  the  Productivity  theory.  What  is  right  for 
the  one  must  be  fair  for  the  other ;  and  if  capital  can  possess  no 
value-creating  power  because  value  is  not  "created,"  on  the 
same  ground  no  other  element  of  production,  be  it  land  or  be 
it  human  labour,  possesses  such  a  power.  This  has  escaped 
the  notice  of  that  numerous  school  which  directs  the  sharpest 
weapons  of  its  criticism  against  the  assumption  that  land  or 
capital  have  any  value -creating  power,  only  with  greater 
emphasis  to  claim  that  very  power  for  labour.1 

In  my  opinion  those  critics  have  only  overturned  one  idol 
to  set  up  another  in  its  place.  They  have  fought  against  one 
prejudice  only  to  take  up  a  narrower  one.  The  privilege  of 
creating  value  belongs  as  little  to  human  labour  as  to  any 
other  factor.  Labour,  like  capital,  creates  goods,  and  goods 
only ;  and  these  goods  wait  for  and  obtain  their  value  only 
from  the  economical  relations  which  they  are  meant  to  serve. 
The  fact  that  there  is  a  certain  amount  of  legitimate  agree- 
ment between  quantity  of  labour  and  value  of  product  has 

1  This  view  is  widely  accepted  even  outside  the  ranks  of  the  Socialists  proper. 
See,  e.g.  Pierstorff,  Lehre  vom  Unternehmergewinn,  p.  22. 


138  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

its  ground  and  reason  in  quite  other  things  than  a  "value- 
creating"  power  in  labour;  in  things  which  I  have  already 
suggested — of  course  in  the  most  cursory  way — in  speaking 
of  the  incidental  connection  of  value  and  costs.  Labour  does 
not  and  cannot  give  value. 

All  these  prejudices  have  been  a  deplorable  hindrance  to 
the  development  of  theory.  People  were  misled  by  them  into 
settling  with  the  most  difficult  problems  of  the  science  much  too 
easily.  If  the  formation  of  value  was  to  be  explained  they 
followed  up  the  chain  of  causes  a  little  way — often  a  very  little 
way — only  to  come  to  a  stop  at  the  false  and  prejudiced 
decision  that  capital  or  labour  had  created  the  value.  Beyond 
this  point  they  gave  up  looking  for  the  true  causes,  and  made 
no  attempt  to  follow  the  problem  into  those  depths  where  we 
first  meet  with  its  peculiar  difficulties. 

To  turn  now  to  the  second  interpretation  that  may  be 
given  to  the  Naive  Productivity  theory.  Here  the  productive 
power  ascribed  to  capital  is,  in  the  first  instance,  to  be  under- 
stood as  Physical  Productivity  only;  that  is  a  capacity  of 
capital  to  assist  in  the  production  of  more  goods  or  better 
goods  than  could  be  obtained  without  its  help.  But  it  is 
assumed  as  self-evident  that  the  increased  product,  besides 
replacing  the  costs  of  capital  expended,  must  include  a  surplus 
of  value.  What  is  the  force  of  this  interpretation  ? 

I  grant  at  once  that  capital  actually  possesses  the  physi- 
cal productivity  ascribed  to  it — that  is  to  say,  by  its 
assistance  more  goods  can  actually  be  produced  than  without 
it.1  I  will  also  grant — although  here  the  connection  is  not 
quite  so  binding — that  the  greater  amount  of  goods  produced 
by  the  help  of  capital  has  more  value  than  the  smaller 
amount  of  goods  produced  without  its  help.  But  there  is  not 
one  single  feature  in  the  whole  circumstances  to  indicate  that 
this  greater  amount  of  goods  must  be  worth  more  than  the 

1  I  purposely  disclaim  at  this  point  any  inquiry  whether  the  physical 
productivity  of  capital  thus  conceded  is  an  originating  power  in  capital,  or 
whether  the  productive  results  attained  by  the  help  of  capital  should  not  rather 
be  put  to  the  account  of  those  productive  powers  through  which  capital  itself 
originates  ;  particularly  to  the  account  of  the  labour  which  made  the  capital.  I  do 
this  to  avoiu  diverting  the  discussion  from  that  sphere  where  alone,  in  my  opinion, 
the  interest  problem  can  be  adequately  solved, — that  of  the  theory  of  value. 


CHAP,  ii         NOR  DOES  LABOUR  CREATE  VALUE  139 

capital  consumed  in  its  production, — and  it  is  this  phenomenon 
of  surplus  value  we  have  to  explain. 

To  put  it  in  terms  of  Eoscher's  familiar  illustration,  I  at 
once  admit  and  understand  that,  with  the  assistance  of  a  boat  and 
net,  one  may  catch  thirty  fish  a  day,  where  without  this  capital 
one  would  only  have  caught  three.  I  admit  and  understand, 
further,  that  the  thirty  fish  are  of  more  value  than  the  three 
were.  But  that  the  thirty  fish  must  be  worth  more  than 
the  proportion  of  boat  and  net  worn  out  in  catching  them,  is 
an  assumption  which,  far  from  being  self-evident,  we  are  not 
in  the  least  prepared  for  by  the  presuppositions  of  the  case. 
If  we  did  not  know  from  experience  that  the  value  of  the 
return  to  capital  was  regularly  greater  than  the  value  of  the 
substance  of  capital  consumed,  the  Naive  Productivity  theory 
would  not  give  us  one  single  reason  for  looking  on  this  as 
necessary.  It  might  very  well  be  quite  otherwise.  Why 
should  a  concrete  capital  that  yields  a  great  return  not  be 
highly  valued  on  that  account — so  highly  that  its  capital 
value  would  be  equal  to  the  value  of  the  abundant  return 
that  flows  from  it  ?  Why,  e.g.  should  a  boat  and  net  which, 
during  the  time  that  they  last,  help  to  procure  an  extra  return 
of  2700  fish,  not  be  considered  exactly  equal  in  value  to  these 
2700  fish?  But  in  that  case — in  all  physical  productivity 
— there  would  be  no  surplus  value. 

It  is  remarkable  that,  in  certain  of  the  most  prominent 
representatives  of  the  Naive  Productivity  theory,  there  are  to 
be  found  statements  which  would  lead  us  to  expect  such  a 
result,  viz.  the  absence  of  a  surplus  value.  Some  of  our  authors 
directly  teach  that  the  value  of  real  capital  has  a  tendency  to 
adapt  itself  to  the  value  of  its  product.  Thus  Say  writes 
(Traitt,  p.  338)  that  the  value  of  the,  productive  funds  springs 
from  the  value  of  the  product  which  may  come  from  them. 
Eiedel  in  §  91  of  his  National-Oekonomie  lays  down  in  detail 
the  proposition  that  "  the  value  of  means  of  production  " — 
therefore  the  value  of  concrete  portions  of  capital- — "  depends 
substantially  on  their  productive  ability,  or  on  a  capacity 
assured  them,  in  the  unchanging  principles  of  production,  to 
perform  a  greater  or  less  service  in  the  producing  of  material 
values."  And  Koscher  says  in  §  149  of  the  Principles : 
"  Moreover  land  has  this  in.  common  with  other  means  of 


140  THE  NAIVE  PRODUCTIVITY  THEORIES       BOOK  n 

production  that  its  price  is  essentially  conditioned  by  that  of 
its  product." 

What  then,  if,  in  accordance  with  these  views,  the  value  of 
real  capital  accommodates  itself  entirely  to  the  value  of  the 
product,  and  becomes  quite  equal  to  it  ?  And  why  should  it 
not  ?  But  in  that  case  where  would  be  the  surplus  value  ? l 

If  then  surplus  value  be  actually  bound  up  with  the 
physical  productivity  of  capital,  the  fact  is  certainly  not  self- 
evident  ;  and  a  theory  which,  without  a  word  of  explanation, 
takes  that  as  self-evident  has  not  done  what  we  expect  of 
a  theory. 

To  sum  up.  Whichever  of  the  two  meanings  we  give  to 
the  expression  "productive  power,"  the  Naive  Productivity  theory 
breaks  down.  If  it  asserts  a  direct  value-creating  power  in 
capital,  it  asserts  what  is  impossible.  There  is  no  power  in  any 
element  of  production  to  infuse  value  immediately  or  necessarily 
into  its  products.  A  factor  of  production  can  never  be  an  ad-j 
equate  source  of  value.  Wherever  value  makes  its  appearance 
it  has  its  ultimate  cause  in  the  relations  of  human  needs  and 
satisfactions.  Any  tenable  explanation  of  interest  must  go 
back  to  this  ultimate  source.  But  the  hypothesis  of  value- 
creating  power  is  an  attempt  to  evade  this  last  and  most 
difficult  part  of  the  explanation  by  a  quite  untenable  assump- 
tion. 

If,  however,  the  writers  we  are  discussing  understand  by 
productivity,  merely  physical  productivity,  then  they  are  mis- 
taken in  treating  surplus  value  as  an  accompanying  phenomenon 
that  requires  no  explanation.  In  assuming  that  it  is  self- 
explanatory,  and  contributing  no  proof  to  the  assumption,  their 
theory  leaves  out  the  most  important  and  difficult  part  of  the 
explanation. 

It  is,  however,  very  easy  to  understand  the  strong  adher- 
ence given  to  the  Naive  Productivity  theory  in  spite  of  these 
defects.  It  is  impossible  to  deny  that  at  the  first  glance  there 
is  something  exceedingly  plausible  about  it.  It  is  undeniable 
that  capital  helps  to  produce,  and  helps  to  produce  "more." 
At  the  same  time  we  know  that,  at  the  end  of  every  production 

1  See  also  on  this  point  myRechte  und  Verhdltnisse,  p.  104,  etc. ;  and  particularly 
pp.  107-109. 


CHAP,  ii  FAILURE  OF  THE  EXPLANATION  HI 

in  which  capital  takes  part,  there  remains  over  a  "  surplus " 
to  the  undertaker,  and  that  the  amount  of  this  surplus  bears  a 
regular  proportion  to  the  amount  of  capital  expended,  and  to 
the  duration  of  its  expenditure.  In  these  circumstances  noth- 
ing really  is  more  natural  than  to  connect  the  existence  of  this 
surplus  with  the  productive  power  that  resides  in  capital.  It 
would  have  been  wonderful  indeed  if  the  Productivity  theory 
had  not  been  put  forward. 

How  long  one  remains  under  the  influence  of  this  theory 
depends  on  how  soon  one  begins  to  reflect  critically  on  the 
meaning  of  the  word  "  productive."  So  long  as  one  does  not 
reflect,  the  theory  appears  to  be  an  exact  representation  of  facts. 
It  is  a  theory  which,  one  might  say  with  Leroy-Beaulieu,  "  N'a 
fait  ici  que  copier  la  nature."  But  when  one  does  reflect,  this 
same  theory  shows  itself  to  be  a  web  of  dialectical  sophistry, 
woven  by  the  misuse  of  that  ambiguous  term,  "Productive 
Surplus  Result "  of  capital. 

That  is  why  the  Naive  Productivity  theory  is,  I  might  say, 
the  predestinated  interest  theory  of  a  primitive  and  half- 
matured  condition  of  the  science.  But  it  is  also  predestinated 
to  disappear  so  soon  as  the  science  ceases  to  be  "naive."  That 
up  till  the  present  day  it  is  so  widely  accepted  is  not  a  matter 
on  which  modern  political  economy  has  any  reason  to  con- 
gratulate itself. 


CHAPTER    III 

THE   INDIRECT   PRODUCTIVITY   THEORIES 

THE  Indirect1  Productivity  theories  agree  with  the  Naive  theories 
in  placing  the  ultimate  ground  of  interest  in  a  productive  power 
of  capital  But  in  the  working  out  of  this  fundamental  idea 
they  show  a  twofold  advance.  First,  they  keep  clear  of  the 
mysticism  of  "  value-creating  powers,"  and,  remaining  on  solid 
ground  of  fact,  they  always  mean  physical  productivity  when 
they  speak  of  the  "  productivity  of  capital."  Second,  they  do 
not  consider  it  to  be  self-evident  that  physical  productiveness 
must  be  accompanied  by  surplus  in  value.  They  therefore 
insert  a  characteristic  middle  term,  with  the  special  function 
of  giving  reasons  why  the  increased  quantity  of  products  must 
involve  a  surplus  in  value. 

Of  course  the  scientific  value  of  all  such  theories  depends 
on  whether  the  middle  term  will  bear  investigation  or  not; 
and  since  the  writers  of  this  group  differ  very  considerably  as 
regards  this  middle  term,  I  shall  be  obliged  in  this  chapter  to 
state  and  criticise  individual  doctrines  with  much  more  minute- 
ness than  was  necessary  in  the  case  of  the  almost  uniform 
naive  theories.  In  doing  so  I  certainly  impose  on  myself 
and  on  my  readers  no  small  amount  of  trouble,  but  it  is 
impossible  to  do  otherwise  without  sacrificing  honest  and  solid 
criticism.  When  a  writer  has  anything  particular  to  say,  the 
honest  critic  must  allow  him  to  say  it,  and  must  answer  him 

1  I  use  the  unsatisfactory  word  Indirect  for  the  German  Motivirte  (reasoned 
or  motivated).  The  place  taken  by  philosophy  in  German  culture  allows  the 
use  of  many  philosophical  terms  in  general  literature  that  we  could  not  employ 
in  English  without  pedantry.  Our  political  economy,  as  we  are  often  told,  must 
use  the  language  of  the  market  and  the  shop. — W.  S. 


CHAP,  in  LAUDERDALE  143 

point  by  point :  the  particular  must  not  be  dismissed  with  a 
general  phrase. 

The  series  of  the  Indirect  Productivity  theories  begins  with 
Lord  Lauderdale.1 

In  the  theoretical  history  of  interest  Lauderdale  has  rather 
an  important  place.  He  recognises,  as  none  of  his  predecessors 
did,  that  here  is  a  great  problem  waiting  on  solution.  He 
first  states  the  problem  formally  and  explicitly  by  asking, 
What  is  the  nature  of  profit,  and  in  what  way  does  it  originate  ? 
His  criticism  on  the  few  writers  who  had  expressed  them- 
selves on  the  subject  of  natural  interest  before  his  time  is 
well  weighed.  And,  finally,  he  is  the  first  to  put  forward  a 
connected  and  argued  theory  in  the  form  of  a  theory,  and  not 
in  the  form  of  scattered  observations. 

He  begins  by  pronouncing  capital,  in  opposition  to  Adam 
Smith,  to  be  a  third  original  source  of  wealth,  the  others  being 
land  and  labour  (p.  121).  Later  on  he  goes  very  thoroughly 
into  consideration  of  the  method  of  its  working  as  a  source  of 
wealth  (pp.  154-206) ;  and  here  at  the  very  first  he  recognises 
the  importance  and  difficulty  of  the  interest  problem,  and  takes 
occasion,  in  a  remarkable  passage,  to  put  the  problem  formally.2 

He  is  not  satisfied  with  the  views  of  his  predecessors.  He 
expressly  rejects  the  doctrine  of  Locke  and  Adam  Smith,  who 
are  inclined  to  derive  interest  from  the  increment  of  value 
which  the  worker  produces  by  working  with  capital.  He 
rejects  also  Turgot's  doctrine,  which,  much  too  superficially, 
connects  interest  with  the  possibility  of  obtaining  rent  by  the 
purchase  of  land. 

Lauderdale  then  formulates  his  own  theory  in  these  words : 
"  In  every  instance  where  capital  is  so  employed  as  to  produce 
a  profit  it  uniformly  arises  either  from  its  supplanting  a  portion 
of  labour,  which  would  otherwise  be  performed  by  the  hand  of 
man,  or  from  its  performing  a  portion  of  labour,  which  is 

1  An  Inquiry  into  the  Nature  and  Origin  of  Public  Wealth,  Edinburgh,  1804. 

2  "By  what  means  capital  or  stock  contributes  towards  wealth  is  not  so 
apparent.     What  is  the  nature  of  the  profit  of  stock,  and  how  does  it  originate  ? 
are  questions  the  answers  to  which  do  not  immediately  suggest  themselves. 
They  are  indeed  questions  that  have  seldom  been  discussed  by  those  who  have 
treated  on  political  economy,  and  important  as  they  are,  they  seem  nowhere  to 
have  received  a  satisfactory  solution  "  (p.  155).    I  may  here  note  that  Lauderdale, 
like  Adam  Smith  and  Ricardo,  does  not  distinguish  between  interest  proper  and 
undertaker's  profit,  but  groups  both  under  the  name  of  profit. 


144          THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

beyond  the  reach  of  the  personal  exertion  of  man  to  accom- 
plish "  (p.  161). 

In  thus  proclaiming  the  power  of  capital  to  supplant 
labourers  as  the  cause  of  profit,  Lauderdale  refers,  under  a 
somewhat  altered  name,  to  the  same  thing  as  we  have  agreed 
to  call  the  physical  productivity  of  capital.  For  as  a  matter 
of  fact  Lauderdale  himself,  many  times  and  with  emphasis, 
calls  capital  "productive"  and  "producing,"  as  on  pp.  172, 
177,  205. 

Still  the  chief  question  remains,  In  what  way  does  profit 
originate  from  the  power  of  capital  to  supplant  labourers  ? 
According  to  Lauderdale  it  is,  that  the  owner  of  real  capital l 
is  able  to  secure  for  himself  as  his  share,  either  wholly  or  at 
least  in  part,  the  wages  of  those  workers  who  are  replaced  by 
the  capital. 

"  Supposing,  for  example,"  says  Lauderdale,  in  one  of  the 
many  illustrations  by  which  he  tries  to  establish  the  correctness 
of  his  theory,2  "  one  man  with  a  loom  should  be  capable  of 
making  three  pairs  of  stockings  a  day,  and  that  it  should 
require  six  knitters  to  perform  the  same  work  with  equal 
elegance  in  the  same  time ;  it  is  obvious  that  the  proprietor 
of  the  loom  might  demand  for  making  his  three  pairs  of  stock- 
ings the  wages  of  five  knitters,  and  that  he  would  receive 
them ;  because  the  consumer,  by  dealing  with  him  rather  than 
the  knitters,  would  save  in  the  purchase  of  the  stockings  the 
wages  of  one  knitter"  (p.  165). 

An  objection  obviously  suggests  itself  which  Lauderdale 
thus  tries  to  weaken :  "  The  small  profit  which  the  proprietors 
of  machinery  generally  acquire,  when  compared  with  the  wages 
of  labour,  which  the  machine  supplants,  may  perhaps  create 
a  suspicion  of  the  rectitude  of  this  opinion.  Some  fire- 
engines,  for  instance,  draw  more  water  from  a  coal  pit  in  one 
day  than  could  be  conveyed  on  the  shoulders  of  300  men, 

1  Compounds  like  Kapitalstucke  and  KapitalgiUer  I  usually  translate  "  Real 
Capital."— W.  S. 

2  Lauderdale  with  great  patience  and  thoroughness  applies  his  theory  to  all 
possible  employments  of  capital.     He  distinguishes  five  classes  of  such  employ- 
ment— building  and  obtaining  machinery,  home  trade,  foreign  trade,  agriculture, 
and  "  conducting  circulation. "     The  illustration  quoted  in  the  text  is  from  the 
first  of  these  five  divisions.     I  have  chosen  it  because  it  most  clearly  illustrates 
the  way  in  which  Lauderdale  puts  before  himself  the  connection  of  profit  with 
the  labour-replacing  power  of  capital. 


CHAP,  in  LAUDERDALE  145 

even  assisted  by  the  machinery  of  buckets ;  and  a  fire-engine 
undoubtedly  performs  its  labour  at  a  much  smaller  expense 
than  the  amount  of  the  wages  of  those  whose  labour  it  thus 
supplants.  This  is,  in  truth,  the  case  with  all  machinery." 

This  phenomenon,  however,  Lauderdale  explains,  should 
not  mislead  us.  It  simply  arises  from  the  fact  that  the 
profit  obtainable  for  the  use  of  any  machine  must  be  regu- 
lated by  the  universal  regulator  of  prices,  the  relation  of 
supply  and  demand.  "The  case  of  a  patent,  or  exclusive 
privilege  of  the  use  of  a  machine  .  .  .  will  tend  further  to 
illustrate  this. 

"  If  such  a  privilege  is  given  for  the  invention  of  a 
machine,  which  performs,  by  the  labour  of  one  man,  a  quantity 
of  work  that  used  to  take  the  labour  of  four ;  as  the  possession 
of  the  exclusive  privilege  prevents  any  competition  in  doing 
the  work  but  what  proceeds  from  the  labour  of  the  four 
workmen,  their  wages,  as  long  as  the  patent  continues,  must 
obviously  form  the  measure  of  the  patentee's  charge — that  is, 
to  secure  employment  he  has  only  to  charge  a  little  less  than 
the  wages  of  the  labour  which  the  machine  supplants.  But 
when  the  patent  expires,  other  machines  of  the  same  nature 
are  brought  into  competition ;  and  then  his  charge  must  be 
regulated  on  the  same  principle  as  every  other,  according  to 
the  abundance  of  machines,  or  (what  is  the  same  thing), 
according  to  the  facility  of  procuring  machines,  in  proportion 
to  the  demand  for  them." 

In  this  way  Lauderdale  thinks  he  has  satisfactorily  estab- 
lished that  the  cause  and  source  of  profit  lies  in  a  saving  of 
labour,  or  of  the  wages  of  labour. 

Has  he  really  succeeded  in  establishing  this  ?  Has 
Lauderdale  in  the  foregoing  passages  really  explained  the 
origin  of  interest  ?  A  careful  examination  of  his  arguments 
will  very  soon  enable  us  to  answer  this  question  in  the 
negative. 

No  fault  can  be  found  with  the  starting-point  that  he 
takes  for  his  argument.  It  is — to  continue  Lauderdale's  own 
illustration — quite  correct  to  say  that  one  man  with  a  knitting 
loom  may  turn  out  as  many  stockings  in  a  day  as  six  hand 
knitters.  It  is  quite  correct,  also,  to  say  that,  where  the  loom 
is  an  object  of  monopoly,  its  owner  may  easily  secure  for  its 

L 


146         THE  INDIRECT  PRODUCTIVITY  THEORIES     BOOK  n 

day's  work  the  wage  of  five  knitters,  or,  in  the  case  of  unlimited 
competition,  of  course  a  correspondingly  less  amount ;  and 
thus,  after  deducting  the  wages  of  the  man  who  tends  the 
machine,  there  remains  over  as  the  owner's  share  four  days' 
wages  of  labour — under  free  competition,  correspondingly  less, 
but  always  something.  Here  it  is  shown  that  a  share  in  value 
does  really  go  to  the  capitalist. 

But  this,  share,  thus  proved  to  go  to  capital,  is  not  the 
thing  that  was  to  be  explained,  the  Net  Interest  or  profit ;  but 
only  the  gross  return  to  the  use  of  capital.  The  five  wages 
which  the  capitalist  secures,  or  the  four  wages  that  he  retains 
after  paying  the  man  who  attends  to  the  machine,  are  the  total 
income  that  he  makes  by  the  machine.  In  order  to  get  the 
net  profit  contained  in  that  income  we  must,  evidently,  deduct 
the  wear  and  tear  of  the  machine  itself.  But  Lauderdale,  who 
in  the  whole  course  of  his  reasoning  is  always  looking  to 
profit,  has  either  overlooked  this — thus  confusing  gross  and 
net  interest — or  he  considers  it  quite  self-evident  that,  after 
deducting  from  gross  interest  a  proportion  for  wear  and  tear, 
something  remains  over  as  net  interest.  In  the  first  case  he 
has  made  a  distinct  blunder ;  in  the  second  case  he  has 
assumed  without  proof  that  very  point  which  is  the  most 
difficult,  indeed  the  only  difficult  point  to  explain, — that,  after 
deduction  from  the  gross  return  of  capital  of  so  much  of  the 
real  capital  as  has  been  consumed,  something  must  remain 
over  as  surplus  value,  and  why  it  should  remain  over.  In 
other  words,  he  has  not  touched  on  the  great  question  of  the 
interest  problem. 

As  everything  turns  on  this  point,  let  me  put  it  in  its 
clearest  light  by  means  of  figures.  Suppose,  for  convenience, 
that  the  labourers  get.  a  pound  a  week,  and  that  the  machine 
lasts  a  year  before  it  is  entirely  worn  out.  Then  the  gross 
use  of  the  machine  for  a  year  will  be  represented  by  4x52  = 
£208.  To  ascertain  the  net  interest  contained  in  that  we  must 
evidently  deduct  the  whole  capital  value  of  the  machine 
now  completely  worn  out  by  the  year's  work.  How  much  will 
this  capital  value  be  ?  This  evidently  is  the  crucial  point. 
If  the  capital  value  is  less  than  £208,  there  is  a  net  interest 
over.  If  it  is  equal  to,  or  higher  than  £208,  there  can  be  no 
interest  or  profit  over. 


CHAP,  in  LAUDERDALE  147 

Now  on  this  decisive  point  Lauderdale  has  given  neither 
proof  nor  even  assumption.  No  feature  of  his  theory  prevents 
us  assuming  that  the  capital  value  of  the  machine  amounts 
to  fully  £208.  On  the  contrary,  if,  with  Lauderdale,  we  think 
of  the  machine  as  an  object  of  monopoly,  there  is  a  certain 
justification  in  expecting  that  its  price  will  be  very  high. 
I  grant  that  experience  goes  to  show  that  machines  and  real 
capital  in  general,  be  their  monopoly  price  forced  up  ever  so 
high,  never  cost  quite  so  much  as  they  turn  out.  But  this 
is  only  shown  by  experience,  not  by  Lauderdale ;  and  by 
entirely  shirking  the  explanation  of  that  empirical  fact  he  has 
left  the  heart  of  the  interest  problem  untouched. 

In  that  variation  of  the  illustration  where  Lauderdale 
assumes  that  unrestricted  competition  ensues,  it  is  true  that  we 
might  consider  the  value  of  the  machine  as  fixed  (relatively  at 
least)  by  the  amount  of  its  cost  of  production.  But  here 
again  we  are  met  by  the  doubt  as  regards  the  other  determining 
factor,  the  amount  of  the  gross  use.  Say,  e.g.  that  the  machine 
lias  cost  £100,  and  that  £100  is  presumably  its  capital 
value,  then  whether  there  is  any  net  interest  over  or  not  will 
depend  on  whether  the  daily  gross  return  of  the  machine 
exceeds  £g-§§  or  not.  Will  it  exceed  that  ?  All  that  Lauder- 
dale says  on  this  point  is  that  the  claim  of  the  capitalist 
"  must  be  regulated  on  the  same  principle  as  everything  else," 
the  relation  of  supply  and  demand.  That  is,  he  says  nothing 
at  all. 

And  yet  it  was  very  necessary  to  say  something,  and, 
moreover,  to  prove  what  was  said.  For  it  is  not  in  the  least 
self-evident  that  the  gross  use  is  higher  than  the  capital  value 
of  the  machine,  if  that  value  is  pressed  down  by  free  competi- 
tion to  the  amount  of  its  cost.  It  is  just  where  unrestricted 
competition  prevails  in  the  use  of  the  machine,  that  it  presses 
down  the  value  of  the  products  of  capital  also — in  this  case, 
the  stockings — and  thus  presses  down  the  gross  return  to 
the  machine.  Now,  so  long  as  the  machine  produces  more 
than  it  costs,  there  remains  a  profit  to  the  undertaker ;  and 
the  existence  of  a  profit,  one  would  think,  will  act  as  induce- 
ment to  the  further  multiplication  of  the  machines  till  such 
time  as,  through  the  increased  competition,  the  extra  profit 
entirely  vanishes.  Why  should  competition  call  a  halt  earlier? 


148         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

Why,  e.g.  should  it  call  a  halt  at  the  time  when  the  gross  use 
of  a  machine  which  costs  £100  has  sunk  to  £110  or  £105, 
w,hen  a  net  interest  of  10  per  cent  or  5  per  cent  is  thereby 
assured  ?  This  calls  for  a  satisfactory  explanation  of  its  own, 
and  Lauderdale  has  not  said  a  word  about  it. 

His  explanation  has  therefore  shot  beside  the  mark. 
What  it  actually  explains  is  something  that  had  no  need  of 
explanation,  viz.  the  fact  that  capital  gives  a  gross  interest,  a 
gross  return.  But  what  had  great  need  of  explanation,  viz. 
the  remainder  of  a  net  return  in  the  gross  return,  remains  as 
obscure  as  before. 

The  test  by  which  Lauderdale  attempts  to  confirm  the 
accuracy  of  his  theory,  and  on  which  he  lays  great  weight, 
will  not  do  much  to  change  our  opinion.  He  shows  that 
where  a  machine  saves  no  labour — where,  e.g.  the  machine 
takes  three  days  to  make  a  pair  of  stockings,  while  the 
hand- worker  does  the  same  in  two  days — there  is  no  "profit." 
This,  according  to  Lauderdale,  is  an  evident  proof  that  profit 
does  come  from  the  power  of  capital  to  replace  labourers  (p. 
164). 

The  reasoning  is  weak  enough.  It  shows  of  course  that  the 
power  of  the  machine  to  replace  labour  is  an  indispensable 
condition  of  the  profit — which  is  tolerably  self-evident,  since, 
if  the  machine  had  not  this  property,  it  would  have  no  use 
at  all,  and  would  not  even  belong  to  the  class  we  call  "  goods." 
But  it  is  very  far  from  showing  that  interest  is  fully  explained 
by  this  power.  By  using  a  strictly  analogous  test  he  might 
have  proved  a  totally  opposite  theory,  viz.  that  profit  comes 
from  the  activity  of  the  workman  who  tends  the  machine. 
If  nobody  tends  the  machine  it  stands  still,  and  if  it  stands 
still  it  never  yields  any  profit.  Consequently  it  is  the  work- 
man who  creates  the  profit ! 

I  have  purposely  taken  the  greater  care  in  examining  the 
blunders  into  which  Lauderdale's  method  of  explanation  leads 
him,  because  the  criticism  applies  not  to  Lauderdale  alone,  but 
to  all  those  who,  in  trying  to  trace  interest  to  the  productivity 
of  capital,  have  fallen  into  the  same  errors.  And  we  shall  see 
that  the  number  of  those  who  have  thus  been  criticised  in 
advance  is  not  small,  and  embraces  many  a  well-known 
name. 


CHAP,  in  MALTHUS  149 

Lauderdale  found  his  first  important  follower,  though  by 
no  means  his  disciple,  in  Malthus.1 

With  Lis  usual  love  of  exact  definition  Malthus  has 
carefully  stated  the  nature  of  profit.  "  The  profits  of  capital 
consist  of  the  difference  between  the  value  of  the  advances 
necessary  to  produce  a  commodity  and  the  value  of  the 
commodity  when  produced"  (p.  293  ;  second  edition,  p.  262). 

"The  rate  of  profit,"  he  continues  more  exactly  than 
euphoniously,  "  is  the  proportion  which  the  difference  between 
the  value  of  the  advances  and  the  value  of  the  commodity 
produced  bears  to  the  value  of  the  advances,  and  it  varies 
with  the  variations  of  the  value  of  the  advances  compared 
with  the  value  of  the  product." 

After  expressions  like  these  the  question  would  seem  to 
suggest  itself,  Why  must  there  be  this  difference  between  the 
value  of  the  advances  and  the  value  of  the  product  ?  Un- 
fortunately Malthus  does  not  go  on  to  put  this  question 
explicitly.  He  has  given  all  his  care  to  the  inquiry  as  to  the 
rate  of  interest,  and  has  left  only  a  few  rather  inadequate 
indications  as  to  its  origin. 

In  the  most  complete  of  these  Malthus,  quite  in  the  style 
of  Lauderdale,  points  to  the  productive  power  of  capital.  "  If 
by  means  of  certain  advances  to  the  labourer  of  machinery, 
food,  and  materials  previously  collected,  he  can  execute  eight 
or  ten  times  as  much  work  as  he  could  without  such  assistance, 
the  person  furnishing  them  might  appear  at  first  to  be  entitled 
to  the  difference  between  the  powers  of  unassisted  labour  and 
the  powers  of  labour  so  assisted.  But  the  prices  of  commodities 
do  not  depend  upon  their  intrinsic  utility,  but  upon  the  supply 
and  the  demand.  The  increased  powers  of  labour  would 
naturally  produce  an  increased  supply  of  commodities ;  their 
prices  would  consequently  fall,  and  the  remuneration  for  the 
capital  advanced  would  soon  be  reduced  to  what  was  necessary, 
in  the  existing  state  of  society,  to  bring  the  articles,  to  the 
production  of  which  they  were  applied,  to  market.  With 
regard  to  the  labourers  employed,  as  neither  their  exertions 
nor  their  skill  would  necessarily  be  much  greater  than  if  they 
had  worked  unassisted,  their  remuneration  would  be  nearly  the 

1  Principles  of  Political  Economy.     London,  1820,  third  edition  ;  Pickering, 
1836. 


150         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

same  as  before.  ...  It  is  not,  therefore,"  continues  Malthus, 
making  his  point  of  view  more  precise  by  a  polemical  remark, 
"  quite  correct  to  represent,  as  Adam  Smith  does,  the  profits  of 
capital  as  a  deduction  from  the  produce  of  labour.  They  are 
only  a  fair  remuneration  for  that  part  of  the  production  con- 
tributed by  the  capitalist,  estimated  exactly  in  the  same  way 
as  the  contribution  of  the  labourer"  (p.  80). 

In  this  analysis  the  reader  will  have  no  difficulty  in 
recognising  the  principal  ideas  of  Lauderdale's  Productivity 
theory,  only  put  in  a  somewhat  modified  form  and  with  some- 
what less  precision.  There  is  only  one  feature  that  points  in 
another  direction ;  that  is,  the  prominence — if  we  may  use  so 
strong  a  word — given  to  the  fact  that  the  pressure  of  competi- 
tion must  always  leave  over  a  share  to  the  capitalist  —  as 
much  as  may  be  "  necessary  to  bring  the  articles,  to  the  produc- 
tion of  which  the  capital  was  applied,  to  market."  Malthus 
indeed  has  not  said  anything  in  further  explanation  of  this 
new  feature.  But  the  fact  of  his  mentioning  it  at  all  shows 
distinctly  his  feeling  that,  in  the  formation  of  profit,  some- 
thing besides  the  productivity  of  capital  must  be  concerned. 

The  same  idea  comes  out  more  forcibly  in  Malthus's  direct 
statement  that  profit  is  a  constituent  part  of  the  costs  of 
production.1 

The  formal  enunciation  of  this  proposition,  to  which  Adam 
Smith  and  Eicardo  inclined  without  explicit  mention  of  it,2  was, 
as  things  have  turned  out,  a  literary  event  of  some  importance. 
It  started  the  stirring  controversy  which  was  carried  on  for 
some  decades  with  great  vigour,  first  in  England,  and  then  in 
other  countries,  and  this  controversy  was,  indirectly,  of  great 
use  in  developing  the  interest  theory.  For  when  economists 
were  eagerly  discussing  whether  profit  should  belong  to  the 
costs  of  production  or  not,  they  could  scarcely  avoid  making 
a  more  thorough  investigation  into  its  nature  and  origin. 

The  proposition  that  interest  is   a  constituent  portion  of 

1  Principles,  p.  84,  and  many  other  places  ;  Definitions  in  Political  Economy 
Nos.  40,  41. 

2  A  note  which  may  be  found  in   Ricardo's  Principles  at  the  end  of  §  6, 
chap.  i.  (p.  30  of  1871  edition),  has  sometimes  given  the  impression  that  Ricardo 
had  by  that  time  stated  the  above  proposition  explicitly.     This,  however,  is 
not  the  case.     He  only  suggested  the  idea  to  Malthus,  who  put  it  into  words. 
See  Wollenborg,  Intorno  al  costo  relativo  di  Produzione,  Bologna,  1882,  p.  26. 


CHAP,  in  MALTHUS  151 

the  costs  of  production  is  likely  to  be  judged  in  an  essentially 
different  way  by  the  theorist,  and  by  the  historian  of  theory. 
The  former  will  pronounce  it  a  gross  mistake,  as  did  Malthus's 
contemporary  Torrens,  and  as  lately  Pierst&ff  has  done  in 
harsh  terms — much  too  harsh,  in  my  opinion.1  Profit  is  not 
a  sacrifice  that  production  requires,  but  a  share  in  its  fruits. 
To  pronounce  it  a  sacrifice  was  only  possible  by  a  somewhat 
gross  confusion  of  the  national  economic  standpoint  with  the 
individual  economic  standpoint^  the  standpoint  of  the  indi- 
vidual undertaker  who,  of  course,  feels  the  paying  out  of 
interest  on  borrowed  capital  as  a  sacrifice. 

But  still,  even  in  this  unfortunate  form,  there  lies  an  idea 
which  is  full  of  significance,  and  which  points  beyond  the 
inadequate  Productivity  theory;  and  this  Malthus  evidently 
had  in  his  mind.  It  is  the  idea  that  the  sacrifices  of  produc- 
tion are  not  exhausted  in  the  labour  which  is  employed  in 
production,  whether  that  labour  be  directly,  or — as  embodied 
in  real  capital — indirectly  employed  ;  that  beyond  this  there  is 
a  peculiar  sacrifice  demanded  from  the  capitalist  which  equally 
demands  its  compensation.  Malthus  of  course  was  not  able  to 
indicate  more  accurately  the  nature  of  this  sacrifice.  Yet  in 
this  somewhat  unusual  mention  of  profit  as  a  constituent  of 
costs  the  historian  of  theory  will  recognise  an  interesting 
middle  course  between  Adam  Smith's  first  suggestion, — that 
the  capitalist  must  have  a  profit,  because  otherwise  he  would 
have  no  interest  in  the  accumulation  of  capital, — and  the 
more  precise  theories ;  whether,  with  Say,  these  theories 
pronounce  productive  services  to  be  a  sacrifice  demanding 
compensation  and  a  constituent  part  of  the  costs  of  production, 
or,  with  Hermann,  pronounce  the  use  of  capital  to  be  that 
sacrifice,  or,  like  Senior,  find  this  sacrifice  and  cost  in  the 
capitalist's  abstinence.  In  Malthus,  indeed,  the  first  notes  of 
these  more  precise  doctrines  are  yet  too  lightly  sounded  to 
drown  the  ruder  explanation,  which,  like  Lauderdale,  he 
deduced  from  the  productive  power  of  capital. 

But  that  neither  the  one  explanation  nor  the  other  really 
passed  into  a  substantial  theory  is  shown  by  his  remarks  on 
the  rate  of  profit  (p.  294).  Instead  of  deriving  the  current 
rate  of  interest,  as  one  would  naturally  have  expected,  from 

1  Lehre  vom  Ujiternehmergeurinn,  p.  24. 


152         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

the  play  of  those  same  forces  that  bring  interest  into  existence, 
he  explains  it  as  determined  by  influences  of  a  different  kind 
altogether ;  by  the  height  of  wages  on  the  one  hand  and  the 
price  of  products  on  the  other. 

He  calculates  in  the  following  manner.  Profit  is  the 
difference  between  the  value  of  the  costs  advanced  by  the 
capitalist,  and  the  value  of  the  product.  The  rate  of  profit 
will,  accordingly,  be  greater,  the  less  the  value  of  the  costs 
and  the  greater  the  value  of  the  product.  But  as  the  greatest 
and  most  important  portion  of  the  costs  consist  in  wages  of 
labour,  we  have  as  the  two  determinants  which  influence  the 
rate  of  profit,  the  height  of  wages  on  the  one  hand  and  the 
price  of  products  on  the  other. 

However  logical  this  way  of  explanation  seems  to  be,  it  is 
easy  to  show  that  it  does  riot,  at  any  rate,  go  to  the  heart  of 
the  matter.  To  show  what  I  mean,  perhaps  I  may  be  allowed 
to  make  use  of  a  comparison.  Suppose  we  wish  to  name  the 
cause  that  determines  the  distance  between  the  car  of  a 
balloon  and  the  balloon  itself.  It  ii  clear  at  the  first  glance 
that  the  cause  is  to  be  found  in  the  length  of  the  rope  that 
fastens  the  car  to  the  balloon.  What  should  we  say  if  some 
one  were  to  conduct  the  investigation  thus :  the  distance  is 
equal  to  the  difference  in  the  absolute  height  of  the  balloon 
and  of  the  car,  and  is  therefore  increased  by  everything  that 
increases  the  absolute  height  of  the  balloon  and  diminishes  the 
absolute  height  of  the  car;  and  is  diminished  by  everything 
that  diminishes  the  absolute  height  of  the  balloon  and  in- 
creases the  Absolute  height  of  the  car  ?  And  now  the  ex- 
plainer would  call  to  the  assistance  of  his  explanation  everything 
that  could  have  any  possible  influence  over  the  absolute  eleva- 
tion of  the  balloon  and  of  the  car — such  as  density  of  the 
atmosphere,  weight  of  the  covering  of  balloon  and  car,  number 
of  persons  in  the  car,  tenuity  of  the  gases  employed  to  fill  it — 
only  omitting  the  length  of  the  rope  that  tied  the  two ! 

And  just  in  this  way  does  Malthus  act.  In  page  after 
page  of  research  he  inquires  why  wages  are  high  or  low. 
He  is  never  tired  of  controverting  Eicardo,  and  proving  that 
the  difficulty  or  ease  of  production  from  land  is  not  the  only 
cause  of  a  high  or  a  low  wage,  but  that  the  abundance  of 
capital  which  accompanies  the  demand  for  labour  has  also  its 


CHAP,  in  MALTHUS  153 

influence  on  wage.  In  the  same  way  he  is  never  tired  of 
asserting  that  the  relation  of  supply  and  demand  for  products, 
by  fixing  their  price  higher  or  lower,  is  the  cause  of  a  high  or 
a  low  profit.  But  he  forgets  to  put  the  simplest  question  of 
all — the  question  on  which  everything  hinges,  What  power  is 
it  that  keeps  wage  of  labour  and  price  of  product  apart  in  such 
a  way  that,  no  matter  what  be  their  absolute  level,  they  leave 
a  space  between  them  which  is  filled  up  by  profit  ? 

Only  once,  and  then  very  faintly — even  more  faintly  than 
Ricardo  on  a  similar  occasion — does  Mai  thus  hint  at  the 
existence  of  a  power  of  this  sort,  when  he  remarks  on  p.  303 
that  the  gradual  diminution  of  the  rate  of  profit  must,  in  the 
long  run,  bring  "  the  power  and  the  will  to  accumulate  capital " 
to  a  standstill  But  he  does  not  make  any  more  use  of  this 
element  to  explain  the  height  of  profit  than  did  Ricardo. 

Finally,  Malthus's  explanation  loses  any  force  it  had  through 
the  fact  that,  to  determine  the  prices  of  products — price  being 
one  of  his  two  standard  factors — he  cannot  bring  forward 
anything  more  substantial  than  the  relation  of  supply  and 
demand.1  Here  the  theory  finds  a  conclusion  where  it  is,  I 
grant  incontrovertible,  but  where  at  the  same  time  it  ceases 
to  say  anything.  That  the  rate  of  interest  is  influenced  by 
the  relation  between  the  demand  and  the  supply  of  certain 
goods  is,  considering  the  fact  that  interest  is  itself  a  price, 
or  a  difference  in  price,  a  little  too  obvious.2 

After  Malthus  the  theory  of  the  productive  power  of  capital 
was  only  handed  on  in  England  by  Read.3  As  Read,  however, 
took  elements  from  other  theories,  we  shall  have  to  speak  of  him 
again  among  the  eclectics.  But  very  similar  views  are  to  be  found 
somewhat  later  in  the  writings  of  certain  celebrated  American 
economists,  particularly  Henry  Carey  and  Peshine  Smith. 

Carey  4  offers  one  of  the  very  worst  examples  of  confused 

1  ".  .  .  the  latter  case  shows  at  once  how  much  profits  depend  upon  the 
prices  of  commodities,  and  upon  the  cause  which  determines  these  prices,  namely, 
the  supply  compared  with  the  demand"  (p.  334). 

2  I  think  I  may  pass  over  Malthus's  wearisome  and  unfruitful  controversy 
&  gainst  Ricardo's  interest  theory.      It  offers  many  weak  points.      Those  who 
wish  to  read  an  accurate  judgment  on  it  will  find  it  in  Pierstorff,  p.  23. 

3  An  Inquiry  into  the  Natural  Grounds  of  Right  to   Vendible   Property  or 
Wealth.     Edinburgh,  1829. 

4  His  chief  work  is  the  Principles  of  Social  Science,  1858. 


154         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

thinking  on  a  subject  where  there  has  already  been  much  con- 
fusion. What  he  says  on  interest  is  a  tissue  of  incredibly 
clumsy  and  wanton  mistakes— ^mistakes  of  such  a  nature  that 
it  is  almost  inconceivable  how  they  should  ever  have  received 
any  consideration  in  the  scientific  world.  I  should  not  express 
this  opinion  in  such  severe  terms  if  it  were  not  that  Carey's 
interest  theory  even  yet  enjoys  a  reputation  which  I  consider 
very  ill  deserved.  It  is  one  of  those  theories  which,  to  my 
mind,  cast  discredit  not  only  on  their  authors,  but  on  the 
science  that  lets  itself  be  seduced  into  credulous  acceptance  of 
them ;  not  so  much  that  it  errs  as  for  the  unpardonably 
blundering  way  in  which  it  errs.  Whether  I  speak  too 
harshly  of  it  or  not  let  the  reader  judge. 

Carey  has  not  given  any  abstract  formulation  to  his  views 
on  the  source  of  interest.  Following  his  favourite  plan  of 
explaining  economical  phenomena  by  introducing  simple  situa- 
tions of  Eobinson  Crusoe  life,  he  contents  himself,  in  the 
present  case,  with  giving  a  pictorial  account  of  the  origin  of 
interest,  so  that  we  discover  his  opinion  on  its  causes  only  by  the 
characteristic  features  which  he  gives  to  imaginary  transactions. 
It  is  from  such  pictures  that  we  have  to  put  together  Carey's 
theory. 

He  deals  with  our  subject  ostensibly  in  the  forty -first 
chapter  of  his  Principles,  under  the  title,  "  Wages,  Profit,  and 
Interest"  After  a  few  introductory  words  the  following 
picture  occurs  in  the  first  paragraph : — 

"Friday  had  no  canoe,  nor  had  he  acquired  the  mental 
capital  required  for  producing  such  an  instrument.  Had 
Crusoe  owned  one,  and  had  Friday  desired  to  borrow  it,  the 
former  might  thus  have  answered  him — 

" '  Fish  abound  at  some  little  distance  from  the  shore, 
whereas  they  are  scarce  in  our  immediate  neighbourhood. 
Working  without  the  help  of  my  canoe,  you  will  scarcely,  with 
all  your  labour,  obtain  the  food  required  for  the  preservation 
of  life ;  whereas,  with  it,  you  will,  with  half  your  time,  take 
as  many  fish  as  will  supply  us  both.  Give  me  three-fourths 
of  all  you  take,  and  you  shall  have  the  remainder  for  your 
services.  This  will  secure  you  an  abundant  supply  of  food, 
leaving  much  of  your  time  unoccupied,  to  be  applied  to  giving 
yourself  better  shelter  and  better  clothing.' 


CHAP,  in  CAREY  155 

"Hard  as  this  might  seem,  Friday  would  have  accepted 
the  offer,  profiting  by  Crusoe's  capital,  though  paying  dearly 
for  its  use." 

Up  to  this  point  one  can  easily  see  that  Carey's  theory  is 
a  tolerably  faithful  copy  of  Lauderdale's.  Like  him  Carey 
starts  by  making  capital  the  cause  of  a  productive  surplus 
result.  This  forms  the  occasion  for  the  capitalist  receiving  a 
price  for  the  use  of  his  capital,  and  this  price — as  appears  from 
many  passages  —  is  without  further  examination  identified 
by  Carey,  as  it  was  by  Lauderdale,  with  interest,  although 
obviously  it  only  represents  the  gross  use  of  the  capital  It 
makes  no  difference  that  Carey,  unlike  Lauderdale,  does  not 
look  on  capital  as  an  independent  factor  in  production,  but 
only  as  an  instrument  of  production.  The  essential  feature 
remains  that  the  surplus  result  from  the  production,  associated 
with  the  employment  of  capital,  is  put  down  as  the  cause  of 
interest. 

But  while  Lauderdale  is  only  open  to  the  charge  of  having 
mixed  up  gross  and  net  use,  Carey  plays  fast  and  loose  with  a 
whole  row  of  conceptions.  Not  only  does  he  confuse  net  and 
gross  use,  but  he  confuses  these  two  conceptions  again  witli 
real  capital  itself,  and  that  not  occasionally  but  consistently. 
That  is  to  say,  he  deliberately  identifies  the  causes  of  a  high 
or  low  interest  with  the  causes  of  a  high  or  low  value  of  real 
capital,  and  deduces  the  height  of  the  interest  rate  from  the 
height  of  the  value  of  real  capital. 

This  almost  incredible  confusion  of  ideas  shows  itself  in 
every  passage  where  Carey  treats  of  interest.  For  statement 
of  his  argument  I  shall  use  chap.  vi.  (on  Value)  and  chap.  xli. 
(on  Wage,  Profit,  and  Interest),  where  he  expresses  himself  most 
connectedly  on  the  subject. 

According  to  Carey's  well-known  theory  of  value,  the  value 
of  all  goods  is  measured  by  the  amount  of  the  costs  required 
for  their  reproduction.  Progressive  economical  development, 
which  is  simply  man's  progressive  mastery  over  nature, 
enables  man  to  replace  the  goods  he  needs  at  a  steadily 
decreasing  cost.  This  is  true,  among  other  things,  of  those 
tools  that  form  man's  capital ;  capital  shows,  therefore, 
the  tendency  to  fall  steadily  in  value  with  the  advance  of 
civilisation.  "  The  quantity  of  labour  required  for  reproducing 


156         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

existing  capital  and  for  further  extending  the  quantity  of 
capital  diminishes  with  every  stage  of  progress.  Past  accumu- 
lations tend  steadily  to  decline  in  value,  labour  rising  not  less 
steadily  when  compared  with  them"  (iii.  p.  130;  so  also  i. 
chap.  i.  passim). 

Accompanying  this  and  as  result  of  the  decrease  in  the 
value  of  capital  comes  a  fall  in  the  price  paid  for  its  use. 
This  proposition  is  not  actually  stated  by  Carey ;  he  evidently 
thinks  it  too  self-evident  to  require  that, — as  indeed,  rightly 
understood,  it  is, — but  it  is  assumed  and  referred  to  in  his 
pictures  of  Crusoe's  economical  development.  He  relates  how 
the  owner  of  the  first  axe  may  have  been  able  to  demand  for 
the  loan  of  it  more  than  half  the  wood  that  could  be  cut  by 
it,  while  later,  when  better  axes  can  be  made  at  a  cheaper 
price,  a  lower  (relative)  price  is  paid  for  their  use  (i.  p.  193). 

On  these  preliminary  facts,  then,  Carey  builds  his  great 
law  of  interest ; — that,  with  advancing  economical  civilisation, 
the  rate  of  profit  on  capital — that  is,  the  rate  of  interest — 
falls,  while  the  absolute  quantity  of  profit  rises.  The  way  in 
which  Carey  arrives  at  this  law  can  only  be  adequately 
appreciated  by  reading  his  own  words.  The  reader  may  there- 
fore pardon  the  somewhat  lengthy  quotation  that  follows. 

"  Little  as  was  the  work  that  could  be  done  with  the  help 
of  an  axe  of  stone,  its  service  to  the  owner  had  been  very 
great.  It  was  therefore  clear  to  him  that  the  man  to  whom  he 
lent  it  should  pay  him  largely  for  its  use.  He  could,  too,  as 
we  readily  see,  well  afford  to  do  so.  Cutting  with  it  more 
wood  in  a  day  than  without  it  he  could  cut  in  a  month,  he 
would  profit  by  its  help  were  he  allowed  but  a  tenth  of  his 
labour's  products.  Being  permitted  to  retain  a  fourth,  he 
finds  his  wages  much  increased,  notwithstanding  the  large 
proportion  claimed  as  profit  by  his  neighbour  capitalist. 

"  The  bronze  axe  being  next  obtained,  and  proving  far  more 
useful,  its  owner — being  asked  to  grant  its  use — is  now, 
however,  required  to  recollect  that  not  only  had  the  produc- 
tiveness of  labour  greatly  increased,  but  the  quantity  required 
to  be  given  to  the  production  of  an  axe  had  also  greatly 
decreased,  capital  thus  declining  in  its  power  over  labour,  as 
labour  increased  in  its  power  for  the  reproduction  of  capital. 
He,  therefore,  limits  himself  to  demanding  two-thirds  of  the 


CHAP,  in  CAREl-  157 

price  of  the  more  potent  instrument,  saying  to  the  woodcutter : 
'  You  can  do  twice  as  much  work  with  this  as  you  now  do 
with  our  neighbour's  stone  axe ;  and  if  I  permit  you  to  retain 
a  third  of  the  wood  that  is  cut,  your  wages  will  still  be 
doubled.'  This  arrangement  being  made,  the  comparative 
effects  of  the  earlier  and  later  distributions  are  as  follows : — 

Total  Labourer's  Capitalist's 

Product.  Share.  Share. 

First  4         .         .         1         .         .         3 

Second     .         .         8  .         2'66    .         .         5-33 

"  The  reward  of  labour  has  more  than  doubled,  as  a  con- 
sequence of  the  receipt  of  an  increased  proportion  of  an  in- 
creased quantity.  The  capitalist's  share  has  not  quite  doubled, 
he  receiving  a  diminished  proportion  of  an  increased  quantity. 
The  position  of  the  labourer,  which  had  at  first  stood  as  only 
one  to  three,  is  now  as  one  to  two ;  with  great  increase  of 
power  to  accumulate,  and  thus  to  become  himself  a  capitalist. 
With  the  substitution  of  mental  for  merely  physical  power, 
the  tendency  to  equality  becomes  more  and  more  developed. 

"  The  axe  of  iron  next  coming,  a  new  distribution  is  required, 
the  cost  of  reproduction  having  again  diminished,  while  labour 
has  again  increased  in  its  proportions  as  compared  with  capital. 
The  new  instrument  cuts  twice  as  much  as  had  been  cut  by 
the  one  of  bronze,  and  yet  its  owner  finds  himself  compelled 
to  be  content  with  claiming  half  the  product ;  the  following 
figures  now  presenting  a  comparative  view  of  the  several 
modes  of  distribution  : — 

Total.  Labourer.  Capitalist. 

First                            4  .         .          1         .  .          3 

Second                         8  2'66    .  .         5'33 

Third       .                  16  .         .         8         .  .         8 

"  The  axe  of  iron  and  steel  now  coming,  the  product  is 
again  doubled,  with  further  diminution  in  the  cost  of  repro- 
duction ;  and  now  the  capitalist  is  obliged  to  content  himrelf 
with  a  less  proportion,  the  distribution  being  as  follows : — 

Fourth      .         .         32      .         .         19-20.         .         12-80 

"  The  labourer's  share  has  increased,  and,  the  total  product 
having  largely  increased,  the  augmentation  of  his  quantity  is 
very  great 


158         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

"  That  of  the  capitalist  has  diminished  in  proportion,  but, 
the  product  having  so  much  increased,  this  reduction  of  pro- 
portion has  been  accompanied  by  a  large  increase  of  quantity. 
Both  thus  profit  greatly  by  the  improvements  that  have  been 
effected.  With  every  further  movement  in  the  same  direction 
the  same  results  continue  to  be  obtained — the  proportion  of 
the  labourer  increasing  with  every  increase  in  the  productive- 
ness of  effort — the  proportion  of  the  capitalist  as  steadily 
diminishing,  with  constant  increase  of  quantity  and  equally 
constant  tendency  towards  equality  among  the  various  portions 
of  which  society  is  composed.  .  .  . 

"  Such  is  the  great  law  governing  the  distribution  of  labour's 
products.  Of  all  recorded  in  the  book  of  science,  it  is  perhaps 
the  most  beautiful,  being,  as  it  is,  that  one  in  virtue  of  which 
there  is  established  a  perfect  harmony  of  real  and  true  interests 
among  the  various  classes  of  mankind"  (iii.  pp.  131-136). 

I  beg  the  reader  to  stop  for  a  moment  at  this  point  of  the 
quotation,  and  to  decide  exactly  what  it  is  that  Carey  has  up  to 
this  point  asserted,  and,  if  not  strictly  speaking  proved,  has  at 
least  made  quite  clear.  The  object  of  Carey's  inquiry  was  the 
price  paid  for  the  use  of  the  axe — that  is,  its  hire.  The  amount 
of  this  hire  was  compared  with  the  amount  of  the  total  return 
which  a  worker  could  obtain  by  the  help  of  the  axe.  The 
result  of  this  comparison  is  the  proposition  that,  with  advanc- 
ing civilisation,  the  hire  paid  for  capital  forms  an  always 
decreasing  proportion  of  that  total  return.  This  and  nothing 
else  is  the  substance  of  the  law  which  Carey  up  till  now  has 
expounded  and  proved,  and  which  he  often  abridges  in  the 
words,  "  The  proportion  of  the  capitalist  falls." 

Let  us  hear  Carey  further.  "  That  the  law  here  given 
as  regards  the  return  to  capital  invested  in  axes  is  equally 
true  in  reference  to  all  other  descriptions  of  capital  will  be 
obvious  to  the  reader  upon  slight  reflection."  He  demonstrates 
its  efficacy  first  in  the  reduction  of  the  rent  of  old  houses, 
on  which  there  is  nothing  particular  to  remark,  and  then  goes 
on.  "  So,  too,  with  money.  Brutus  charged  almost  5  0  per 
cent  interest  for  its  use,  and  in  the  days  of  Henry  VIII  the 
proportion  allotted  by  law  to  the  lender  was  10.  Since  then 
it  has  steadily  declined,  4  per  cent  having  become  so  much 
the  established  rate  in  England  that  property  is  uniformly 


CHAP,  in  CAREY  159 

estimated  at  twenty-five  years'  purchase  of  the  rent ;  so  large, 
nevertheless,  having  been  the  increase  in  the  powers  of  man 
that  the  present  receiver  of  a  twenty-fifth  can  command  an 
amount  of  convenience  and  of  comfort  twice  greater  than  could 
have  been  obtained  by  his  predecessors  who  received  a  tenth. 
In  this  decline  in  the  proportion  charged  for  the  use  of  capital 
we  find  the  highest  proof  of  man's  improved  condition  "  (iii.  p. 
135). 

In  these  words  Carey  has  suddenly  performed  a  bold  volte- 
face.  He  speaks  as  if  the  proof  adduced  in  the  foregoing 
passages  referred  to  the  rate  of  interest,  and  thenceforth  treats 
it  as  an  established  fact  that  the  depreciation  of  the  value  of 
capital  brings  about  a  depreciation  of  the  rate  of  interest ! x 

This  change  of  front  rests  on  as  gross  a  piece  of  juggling 
as  can  well  be  imagined.  In  the  whole  course  of  the  preceding 
argument  Carey  has  never  once  mentioned  the  rate  of  interest, 
much  less  made  it  the  subject  of  any  proof.  To  apply 
the  argument  to  the  rate  of  interest  Carey  has  now  to  make 
a  double  perversion  of  his  conceptions — first,  of  the  conception 
of  "  use  " ;  second,  of  the  conception  of  "  proportion." 

In  the  course  of  his  argument  he  has  always  employed  the 
phrase  "  use  of  capital"  in  the  sense  of  "  gross  use."  He  who  hires 
out  an  axe  sells  its  gross  use ;  the  price  which  he  receives 
for  it  is  a  hire  or  gross  interest.  But  now  all  at  once  he 
employs  the  word  use  in  the  sense  of  net  use,  the  use  to  which 
the  net  (money)  interest  corresponds.  While  the  argument, 
therefore,  was  that  gross  interest  has  a  tendency  to  fall 
(relatively),  the  conclusion  drawn  by  Carey  from  his  argument 
is  that  net  use  has  this  tendency. 

But  the  second  perversion  is  ^en  more  gross. 

In  the  course  of  the  argume  ^  the  word  "  proportion  "  had 
always  referred  to  the  relation  between  the  amount  of  the 
interest  and  the  total  return  to  the  labour  done  by  the  help 
of  capital.  But  now,  in  his  application  of  the  argument, 
Carey  interprets  the  word  proportion  as  expressing  a  relation 
between  the  amount  of  the  use  and  the  value  of  the  parent 

1  E.g.  iii.  p.  119  :  "  The  proportion  of  the  capitalist  (profit  or  interest,  as  the 
following  lines  show)  declines  because  of  the  great  economy  of  labour."  P.  149  : 
"Decrease  of  the  costs  of  reproduction  and  reduction  of  the  rate  of  interest  con- 
sequent on  that,"  etc. 


160         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

capital — in  other  words,  the  rate  of  interest.  He  speaks 
of  a  "  proportion  of  1 0  per  cent,"  by  which  he  does  not  mean 
as  formerly  10  per  cent  of  the  return  obtained  by  the  assist- 
ance of  the  capital  lent,  but  10  p'er  cent  on  the  parent  capital. 
And  in  the  fall  of  the  interest  rate  from  10  per  cent  to  4  per 
cent — "  the  decline  in  the  proportion  charged  for  the  use  of 
capital " — he  sees  a  simple  application  of  the  law  just  proved, 
without  a  suspicion  that  the  proportion  spoken  of  earlier  means 
something  quite  different  from  that  now  referred  to. 

In  case  the  reader  may  think  that  this  criticism  is  mere 
hair -splitting,  I  would  ask  him  to  consider  the  following 
concrete  illustration,  which  I  adapt  as  closely  as  possible  to 
Carey's  line  of  argument. 

Suppose  that  with  a  steel  axe  a  worker,  in  a  year's  time, 
can  cut  down  1000  trees.  If  only  one  such  axe  is  to  be  had, 
and  no  other  of  the  same  kind  can  be  made,  its  owner  may 
ask  and  receive  for  the  transference  of  its  use  a  large  part  of 
the  total  return — say  one-half.  Thanks  to  the  monopoly,  the 
capital  value  which  the  single  axe  obtains  in  these  circum- 
stances will  also  be  high ;  it  may,  e.g.  amount  to  the  value  of 
as  many  trunks  as  a  man  can  fell  with  it  in  two  years — that 
is,  2000  trunks.  The  price  of  500  trees  which  is  paid  for 
the  year's  use  of  the  axe  represents  in  this  case  a  proportion 
of  50  per  cent  of  the  total  yearly  return,  but  a  proportion 
of  2  5  per  cent  only  of  the  value  of  the  capital.  This  by  itself 
proves  that  the  two  proportions  are  not  identical ;  but  let  us 
look  further. 

Later  on  people  learn  to  manufacture  steel  axes  in  any 
quantity  desired.  The  capital  value  of  the  axes  falls  to  the 
amount  of  the  costs  of  reproduction  at  the  time.  Say  that 
these  costs  are  equal  to  eighteen  days  of  labour ;  then  a  steel 
axe  will  be  worth  about  as  much  as  fifty  trees,  since  the  felling 
of  fifty  trees  also  costs  eighteen  days'  labour.  Naturally  if 
the  owner  lend  the  axe  he  will  now  be  content  to  take 
a  much  smaller  proportion  of  the  1000  trees  that  represent 
the  year's  work ;  instead  of  receiving  the  half,  as  before,  he 
now  gets  no  more  than  a  twentieth — that  is,  fifty  trees. 
These  fifty  trees  represent,  on  the  one  hand,  5  per  cent  of 
the  total  return,  and,  on  the  other  hand,  100  per  cent  of  the 
capital  value  of  the  axe. 


CHAP,  in  CAREY  161 

What  does  this  prove  ?  The  one  proportion,  50  per 
cent  of  the  gross,  return,  represented  only  2  5  per  cent  of  the 
capital  value  of  the  axe;  the  smaller  proportion,  5  per  cent 
of  the  total  return,  represents  100  per  cent  of  the  capital 
value.  In  other  words,  while  the  proportion  of  the  total 
return  fell  to  a  tenth  part  of  what  it  was  at  first,  the  rate  of 
interest  represented  by  this  proportion  rose  fourfold.  So  little 
necessity  is  there  that  the  proportions  which  Carey  lightly 
confuses  with  one  another  should  run  parallel ;  and  so  little 
does  Carey's  law  of  the  "  falling  of  the  capitalist's  proportion  " 
show  what  he  intended  to  show — the  course  pursued  by  the 
rate  of  interest. 

It  scarcely  needs  further  proof  that  Carey's  contribu- 
tions to  the  explanation  of  interest  are  entirely  worthless. 
The  peculiar  problem  of  interest,  the  explanation  why  it  is 
that  the  return  falling  to  the  share  of  capital  is  worth  more 
than  the  capital  consumed  in  obtaining  it,  is  not  even  touched. 
That  this  sham-solution  has,  nevertheless,  found  admission  into 
the  writings  of  many  most  respectable  economists  of  our 
own  and  other  nations  is  a  proof  of  the  very  small  degree  of 
thoroughness  and  discrimination  with  which, '  unfortunately, 
our  most  difficult  subject  is  usually  treated. 

Scarcely  more  correct — if  at  all — than  Carey  himself  is 
his  disciple  E.  Peshine  Smith,  whose  Manual  of  Political 
Economy  (1853)  has  lately  obtained  a  wide  circulation  in 
Germany  through  Stopel's  translation. 

Peshine  Smith  finds  the  origin  of  profit  in  a  partnership 
between  workman  and  capitalist.  The  object  of  the  partner- 
ship is  "  to  change  the  form,  of  the  commodities  contributed 
by  the  capitalist,  and  increase  their  value  by  combining  them 
with  a  new  infusion  of  labour."  The  return,  "  the  new  thing 
produced,"  is  divided,  and  divided  in  such  a  way  that  the 
capitalist  receives  more  than  the  replacement  of  the  capital 
he  has  contributed,  and  so  makes  a  profit.  Smith  obviously 
considers  it  self-evident  that  it  must  be  so.  For  without 
taking  the  trouble  of  a  formal  explanation,  he  points  out, 
in  quite  general  terms,  that  the  bargain  must  promote  the 
interests  of  both,  and  that  "both  the  capitalist  and  the 
labourer  expect  to  derive  their  respective  shares  in  the  ad- 

M 


162         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

vantages  of  their  partnership."  Beyond  this  he  simply  appeals 
to  the  fact :  "  In  point  of  fact,  they  do  so,  however  long  may 
be  the  series  of  transformations  and  exchanges  before  the 
division  is  made"  (p.  77). 

A  purely  formal  distinction  of  profit  emerges  according  as, 
in  the  partnership,  it  is  the  capitalist  or  the  labourer  who 
takes  the  risk  on  himself.  In  the  former  case  "  the  share  in 
the  product  which  the  workman  obtains  is  called  wages ;  and 
the  difference  in  value  between  the  materials  as  turned  over 
to  the  workman,  the  food,  raiment,  shelter,  etc.,  furnished  to 
the  workman  in  kind,  or  commuted  in  wages,  the  deterioration 
of  the  tools  employed,  and  the  finished  product,  is  termed 
profits.  If  the  workman  takes  the  risk  upon  himself,  that 
share  which  he  gives  to  the  capitalist,  in  addition  to  replacing 
the  capital  he  had  borrowed,  is  called  rent"  (p.  77). 

In  this  passage,  where  Smith  speaks  for  the  first  time  of 
profit,  the  superficial  way  in  which  he  evades  any  deeper 
explanation  of  it  clearly  shows  that  he  has  not  grasped  his 
problem  at  all.  Yet  what  he  has  said  up  till  now,  if  not  of 
much  importance,  is  not  incorrect. 

But  even  this  modest  praise  cannot  be  given  to  what 
follows,  where  he  goes  on  to  examine  the  influences  which  the 
growth  of  capital  exerts  on  the  rate  of  profit.  Here  he 
copies  faithfully  not  only  Carey's  method  of  statement  and 
his  final  conclusions,  but  even  all  his  mistakes  and  blunders. 

First  of  all,  quite  in  Carey's  style,  he  introduces  a  couple 
of  economical  pictures  drawn  from  primitive  conditions.  A 
savage  goes  to  the  owner  of  a  stone  axe,  and  gets  permission 
to  use  the  axe  under  the  condition  that  he  builds  one  canoe 
for  the  owner  of  the  axe,  as  well  as  one  for  himself.  A  genera- 
tion passes  away,  and  copper  axes  are  substituted,  by  the  aid 
of  which  three  times  as  much  work  can  be  done  as  by  the 
stone  axe.  Of  the  six  canoes  that  the  worker  now  builds  in 
the  same  time  as  formerly  he  built  two,  he  may  retain  four  for 
himself,  while  -two  are  claimed  by  the  capitalist.  The  share 
of  the  labourer  has  thus  increased  both  in  proportion  and  in 
quantity ;  that  of  the  capitalist  has  also  increased  in  quantity, 
but  has  decreased  in  relative  proportion, — it  has  fallen  from 
a  half  to  a  third  of  the  product.  Finally,  the  celebrated 
"  American  axes "  of  the  present  day  come  into  use.  With 


CHAP,  in  PESHINE  SMITH  163 

them  three  times  the  work  can  now  be  done  that  used  to  be 
done  by  the  copper  axes,  and  of  the  eighteen  canoes,  or  other 
products  of  labour,  which  the  borrower  of  the  axe  can  now 
make,  he  will  have  to  pay  four  for  the  use  of  the  axe,  and 
fourteen  are  left  him  as  the  share  of  his  labour.  In  this  case 
again  the  share  of  the  worker  has  proportionally  advanced, 
and  that  of  the  capitalist  diminished. 

Arrived  at  this  point,  Smith  begins  to  apply  his  rules  to 
modern  economic  life  and  ita  forms. 

First,  for  the  form  of  contract  with  the  savage  is  substi- 
tuted the  modern  loan  contract. 

"  The  cases  we  have  put  represent  the  capitalist  agreeing 
to  make  a  fixed  payment  out  of  the  product  of  the  capital 
which  he  entrusts  to  the  labourer,  and  of  the  mechanical  force 
of  the  latter.  In  so  doing  he  runs  a  risk  that  the  labourer 
may  not  exert  himself  to  his  full  ability,  and  that  the  residue 
after  payment  of  wages,  upon  which  he  depends  for  profits, 
may  be  less  than  he  calculates.  To  insure  himself  against 
this  contingency,  he  naturally  seeks  to  bargain  for  less  wages 
than  he  is  confident  that  the  earnest  and  honest  exertion  of 
the  workman's  strength  would  enable  him  to  pay,  without 
impairing  his  expected  profit  The  workman,  on  the  contrary, 
knowing  what  he  can  do,  and  unwilling  to  submit  to  any 
reduction,  prefers  to  guarantee  the  profit  which  the  capitalist 
desires,  taking  upon  himself  the  risk  that  the  product  will 
leave  a  margin  broad  enough  to  provide  for  the  wages  which 
the  capitalist  is  afraid  to  guarantee.  The  contract  thus 
becomes  one  of  hiring  capital"  (p.  80). 

The  careful  reader  will  remark  that  in  these  words  not 
only  is  the  new  form  of  contract  substituted  for  the  old, — to 
which  there  is  no  objection,  but,  quite  unexpectedly,  for  the 
price  of  the  use,  which  was  the  thing  formerly  mentioned,  and 
which  was  a  gross  interest,  is  now  substituted  the  "profit" 
(net  interest), — to  which  there  are  very  serious  objections. 

But  Peshine  Smith  goes  still  farther.  Without  hesitation 
he  substitutes  for  the  proportion  of  the  product  the  proportion 
of  the  parent  capital,  or  the  rate  of  interest.  Carey  had  made 
this  confusion  blindly ;  Smith  makes  it  with  all  deliberation, 
which  is  more  singular  and  more  difficult  to  excuse.  "  Men 
reckon  their  gains  by  a  comparison  between  what  they  pre- 


164         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

viously  possessed  and  what  is  added  to  it  The  capitalist 
reckons  his  profits  not  by  his  proportion  of  the  product  which 
has  been  won  by  the  combination  with  labour,  but  by  the 
ratio  which  the  increment  bears  to  the  previous  stock.  He 
says  he  has  made  so  much  per  cent  on  his  capital ;  he  rents 
it  for  so  much  per  cent  for  a  year.  The  difference  is  one  of 
arithmetical  notation,  not  of  fact.  When  his  proportion  of  the 
product  is  small,  it  being  composed  of  the  original  capital  and 
the  increment,  the  ratio  of  the  latter  to  the  capital  will  also 
be  small"  (p.  82). 

That  is  to  say,  a  small  proportion  of  product  and  a  small  rate 
of  interest  are  substantially  identical,  and  only  different  arith- 
metical notations  for  the  same  thing.  For  judgment  of  this 
strange  doctrine  I  need  only  refer  the  reader  to  the  illus- 
tration already  given  when  criticising  Carey.  We  there  saw 
that  the  half  of  the  product  may  represent  25  per  cent  of  the 
capital,  and  that  a  twentieth  part  of  the  product  may  represent 
100  per  cent  of  the  capital.  This  does  seem  something  more 
than  a  mere  difference  in  arithmetical  notation ! 

Substituting  one  term  for  another  in  this  way,  Smith  is 
able,  finally,  to  proclaim  Carey's  "  great  law  "  that  as  civilisa- 
tion advances  the  share  of  the  capitalist — that  is,  the  rate  of 
interest — falls ;  and  to  verify  it  by  the  historical  fact  that  in 
rich  countries  the  rate  of  interest  does  fall.  At  the  same  time 
liis  own  example  illustrates  how  a  tolerably  true  proposition 
may  be  deduced  from  very  false  reasoning. 

In  favourable  contrast  to  the  shallowness  of  the  American 
writer  is  the  homely  but  conscientious  and  thorough-going  way 
in  which  the  German  investigator,  Von  Thiinen,  has  dealt  with 
our  problem.1 

.Like  Carey,  Thiinen  investigates  the  origin  of  interest 
genetically.  He  goes  back  to  primitive  economical  relations, 
follows  the  first  beginnings  of  the  accumulation  of  capital,  and 
inquires  in  what  manner  and  by  what  methods  capital  comes  into 
existence  in  these  circumstances,  as  well  as  under  what  laws 
it  develops.  Before  beginning  the  inquiry  itself  he  is  careful 
to  put  down  with  minute  exactitude  all  the  assumptions  of 

1  Der  isolirte  Stoat,  second  edition,  Rostock,  1842-63.     The  page  numbers 
quoted  in  the  text  refer  to  the  first  division  of  the  second  part  (1850). 


CHAP,  in  THUNEN  165 

fact  with  which  he  starts,  as  well  as  the  terminology  he  means 
to  use  (pp.  74-90).  This  is  valuable  to  Thiinen  as  an  aid  to 
literary  self-control,  and  is  a  characteristic  example  of  his 
conscientious  thoroughness. 

From  this  introduction  we  find  that  Thiinen  starts  by 
supposing  a  people  living  in  a  latitude  of  tropical  fruitfulness, 
equipped  with  all  the  capacity,  knowledge,  and  skill  of  civil- 
isation, but  still,  so  far,  absolutely  without  capital,  and  without 
communication  with  other  peoples ;  so  that  the  accumulation 
of  capital  must  come  from  within,  and  not  be  influenced  at 
all  from  outside.  Land  has  as  yet  no  exchange  value.  All 
men  are  equal  in  position,  equally  capable,  and  equally  saving, 
and  get  their  means  of  support  from  labour. 

The  standard  of  value  which  Thiinen  makes  use  of  for  the 
scope  of  his  inquiry  is  the  labourer's  means  of  subsistence, 
taking  as  unit  the  hundredth  part  of  the  means  of  subsistence 
required  by  a  labourer  during  a  year.  The  year's  need  he 
calls  s,  the  hundredth  part  he  calls  c;  so  that  s  =  100c. 

"Suppose,"  he  begins  (p.  90),  "that  the  worker,  if  diligent 
and  saving,  can  produce  by  his  hands  10  per  cent  more  than 
he  requires  for  his  necessary  subsistence — say  llOc  in  the 
year.  Then,  after  deducting  what  he  must  spend  for  his  own 
support,  there  remains  over  lOc. 

"  In  the  course,  then,  of  ten  years  he  may  accumulate  a 
store  on  which  he  can  live  for  a  year  without  working ;  or  he 
may  for  the  one  whole  year  devote  his  labour  to  the  making 
of  useful  tools — that  is,  to  the  creation  of  capital 

"Let  us  follow  him  now  in  the  labour  that  creates  the 
capital 

"  With  a  hewn  flint  he  manages  to  make  wood  into  a  bow 
and  arrow.  A  fish  bone  serves  for  the  arrow's  point  From 
the  stalk  of  the  plantain,  or  the  fibrous  covering  of  the  cocoa- 
nut,  he  makes  string  or  packthread ;  the  one  he  uses  to  string 
the  bow,  with  the  other  he  makes  fishing  nets. 

"  In  the  following  year  he  applies  himself  again  to  the  pro- 
duction of  means  of  subsistence,  but  he  is  now  provided  with 
bow,  arrows,  and  nets  ;  with  the  help  of  those  tools  his  work  is 
much  more  remunerative,  the  product  of  his  work  much  greater. 

"  Suppose  that  in  this  way  the  result  of  his  work,  after  de- 
ducting what  he  must  spend  to  keep  the  tools  in  an  equally 


166         THE  INDIRECT  PRODUCTIVITY  THEORIES     BOOK  n 

good  state,  rises  from  110  to  150c,  then  he  can  lay  by  in  one 
year  50c,  and  he  only  needs  to  devote  two  years  now  to  the 
production  of  the  means  of  subsistence,  when  he  is  free  again 
to  spend  a  whole  year  in  the  making  of  bows  and  nets. 

"  Now  he  himself  can  make  no  use  of  these,  since  the  tools 
made  in  the  previous  year  are  sufficient  for  his  needs ;  but  he 
can  lend  them  to  a  worker  who  up  till  now  has  worked  without 
capital. 

"This  second  worker  has  been  producing  llOc ;  if  then  he 
is  lent  the  capital,  on  which  the  labourer  who  made  it  has  ex- 
pended a  year's  labour,  his  production,  if  he  keeps  up  the 
value  of  the  tools  lent  him  and  returns  them,  is  150C.1 

"  The  extra  production  got  by  means  of  capital  amounts 
therefore  to  40c. 

"  This  worker  can  consequently  pay  a  rent  of  40c  for  the 
borrowed  capital,  and  this  sum  the  worker  who  produced  the 
capital  draws  in  perpetuity  for  his  one  year's  labour. 

"  Here  we  have  the  origin  and  ground  of  interest,  and  its 
relation  to  capital.  As  the  wages  of  labour  are  to  the  amount 
of  rent  which  the  same  labour,  if  applied  to  the  production  of 
capital,  creates,  so  is  capital  to  interest. 

"  In  the  present  case  the  wage  of  a  year's  work  is  llOc; 
the  rent  brought  in  by  the  capital — that  is,  the  result  of  a 
year's  labour — is  40c. 

"The  ratio  therefore  is  llOc  :  40c  =  100  :  36'4,  and  the 
rate  of  interest  is  3  6 '4  per  cent." 

The  passage  that  follows  refers  not  so  much  to  the  origin 
as  to  the  rate  of  interest,  and  I  shall  only  make  a  brief  abstract 
of  such  of  the  leading  ideas  as  may  illustrate  Thunen's 
conception  still  further. 

According  to  Thiinen,  as  capital  increases,  its  productive 
efficiency  declines,  each  new  increment  of  capital  increasing 

1  "  But  how  can  the  object  lent  be  kept  and  returned  in  equally  good  condition 
and  equal  in  value  ?  This,  I  admit,  does  not  hold  in  the  case  of  individual 
objects,  but  it  certainly  does  in  the  totality  of  objects  lent  within  a  nation.  If, 
e.g.  any  one  hires  out  one  hundred  buildings  for  one  hundred  years,  under  the 
condition  that  the  hirer  annually  erects  a  new  building,  the  hundred  buildings  do 
retain  equal  value  in  spite  of  the  annual  wear  and  tear.  In  this  inquiry  we  must 
necessarily  direct  our  attention  to  the  whole,  and  if  here  only  two  persons  are 
represented  as  dealing  with  one  another,  it  is  simply  a  picture  by  which  we  may 
make  clear  the  movement  that  goes  on  simultaneously  over  the  whole  nation  " 
(note  by  Thiinen). 


CHAP,  in  THVNEN  167 

the  product  of  human  labour  in  a  less  degree  than  the  capital 
formerly  applied.  If,  e.g.  the  first  capital  increased  the  return 
to  labour  by  40c — say  from  llOc  to  150c — the  capital  next 
applied  may  bring  a  further  increase  of  only  36c,  a  third 
capital  32'4c,  and  so  on.  This  on  two  grounds. 

1.  If  the  most  efficient  of  the  tools,  machines,  etc.,  which 
constitute  capital,  are  to  be  had  in  sufficient  quantity,  then  the 
further  production  of  capital  must  be  directed  to  tools  of  less 
efficiency. 

2.  In  agriculture   the    increment  to  capital,  if   it  every- 
where finds  employment,  leads  to  the  cultivation  of  less  fertile 
and  less  favourably   situated  lands,   or   to   a   more   intensive 
cultivation  that  necessitates  greater  costs  ;  and  in  these  cases 
the  capital  last  employed  brings  a  less  rent  than  that  formerly 
employed  (p.  195,  and  more  in  detail,  p.  93). 

In  proportion  as  the  extra  return  produced  by  the  efficiency 
of  capital  declines,  naturally  the  price  that  will  and  can  be 
paid  for  the  use  of  the  capital  transferred  to  the  borrower  also 
declines ;  and  since  there  cannot  be  alongside  each  other  two 
different  rates  of  interest — one  for  the  capital  first  applied  and 
another  for  the  capital  applied  later — the  interest  on  capital  as 
a  whole  adjusts  itself  to  "  the  use  of  that  portion  of  capital 
which  is  last  applied"  (p.  100).  In  virtue  of  these  circum- 
stances the  rate  of  interest  tends  to  sink  with  the  increase  of 
capital,  and  the  reduction  of  rent  that  follows  from  this  is  to 
the  advantage  of  the  labourer,  inasmuch  as  it  raises  the  wage 
of  his  labour  (p.  101). 

We  see  then  that  Thlinen  very  distinctly  makes  the  pro- 
ductive efficiency  of  capital  his  starting-point.  Not  only  is 
this  productive  efficiency  the  origin  of  interest,  but  the 
current  degree  of  the  efficiency  exactly  determines  the  rate  of 
interest. 

Xow  the  value  of  this  theory  depends  altogether  on  the  way 
in  which  is  explained  the  connection  that  exists  between  the 
greater  productiveness  of  labour  supported  by  capital  and  the 
obtaining  of  a  surplus  value  by  the  owner  of  capital. 

Thlinen  happily  keeps  clear  of  two  dangerous  pitfalls.  He 
has  no  fiction  of  a  value-creating  power  in  capital;  he  only 
ascribes  to  it  what  it  actually  has,  viz.  the  capacity  to  assist 


168         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

towards  the  production  of  more  products — in  other  words, 
physical  productivity.  And  second,  he  has  escaped  the  fatal 
confusion  of  gross  and  net  interest.  What  he  calls  net 
interest,  the  40,  36,  32'4c,  etc.,  which  the  capitalist  receives, 
is  really  net  interest,  it  being  expressly  assumed  (p.  91)  that 
the  debtor,  over  and  above  that  interest,  fully  replaces  the 
value  of  the  capital. 

But  by  this  very  hypothesis  Thiinen  has  laid  his  interest 
theory  open  to  attack  from  another  side. 

The  connection  of  ideas  which  in  Thiinen's  theory  leads 
from  the  physical  productivity  of  capital  to  the  obtaining  of 
surplus  value  by  the  capitalist  may  be  put  as  follows : — 

1.  Labour    supported    by   capital   can    obtain    a  greater 
amount  of  products.     This  assumption  is  undoubtedly  correct 

2.  The  plus,   which  is  traceable    to   the  employment  of 
capital,  is  made  up,    in  Thiinen's  illustration,  of  two  compo- 
nents:  first,  of   the  40,  36,  or    32'4c,   which   the   capitalist 
receives  in  means  of  subsistence ;  and  second,  of  the  replacement 
of  the  real  capital  consumed  in  the  employment.     It  is  the 
two  components  together  that  make  up  the  gross  return  to  the 
employment  of   capital.     A  little  calculation  will  show  that 
this   important  proposition,   although   not    plainly  stated    by 
Thiinen,    is    really    contained    in    his    doctrine.      According 
to  Thiinen,   a    year's    labour    unassisted   by  capital  produces 
llOc.     A   year's  labour  assisted  by  capital  is   sufficient,  not 
only  to  renew  the   capital  so  far  as  it  has  experienced  wear 
and  tear,  but  to  produce  150c  besides.     The  difference  of  the 
two  results,  which  represents  the  plus  due  the  employment  of 
capital,  presents,  therefore,  as  a  fact  40c  and  the  upkeep  of 
the  capital.     Still  it  must  be  confessed  that  Thiinen  has  kept 
the  existence  of  the  second  component  very  much  in  the  back- 
ground—  not    indeed    mentioning    it    again    except    in    two 
passages  of  p.  91,  and  entirely  omitting  to  notice  it  in  making 
out  his  later  tables   (pp.   98,    110,  etc.)      The   exactness   of 
these  tables  is  thus  marred  in  no  slight  degree.     For  it  may 
be  imagined  that,  when  capitals  representing  six  or  ten  years' 
labour  are  employed,  the  yearly  labour  spent  in  replacing  them 
must  absorb  a  considerable  portion  of  the  whole  labour  power 
of  the  user. 

3.  The  excess  production  called  forth  by  the  employment 


CHAP,  in  THUNEN  169 

of  capital l  ( =  renewal  -f-  40  or  36  or  32'4c,  as  the  case  may  be) 
falls  to  the  capitalist  as  such.  This  assumption  of  Thiinen's 
is,  in.  my  opinion,  on  the  whole  correct,  even  if  the  war 
of  prices  may  often  modify  the  share  of  the  capitalist  in 
individual  cases. 

4.  This  gross  production  of  capital  that  falls  to  the  capital- 
ist is  regularly  more  valuable  than  the  real  capital  consumed 
in  obtaining  it,  so  that  a  net  production,  a  net  interest,  an 
excess  value  remains.  This  proposition  forms  the  natural 
conclusion  to  the  chain  of  thought.  Thiinen  has  not  put  it 
any  more  than  the  others  in  the  form  of  a  general  theoretical 
proposition.  It  only  appears  in  the  fact  that  his  illustration 
shows  a  regular  surplus  value  in  the  amount  received  by  the 
capitalist  over  the  amount  given  out  by  him,  and  this  of 
course — seeing  that  the  illustration  chosen  is  meant  to  be  a 
typical  one — comes  pretty  much  to  an  express  formulation  of 
the  theoretical  proposition ;  all  the  more  so  that  Thiinen  was 
bound  to  maintain  and  explain  a  permanent  surplus  value  of 
the  return  to  capital  over  the  sacrifice  of  capital,  if  he  meant 
to  explain  the  interest  which  is  this  very  surplus  value. 

At  this  point  we  come  to  the  last  and  the  decisive  stage  in 
Thiinen's  argument.  Hitherto  we  have  found  nothing  essential 
to  object  to,  but  just  at  this  critical  point  the  weakness  of  his 
theory  betrays  itself. 

When  we  ask,  In  what  way  does  Thiinen  explain  and  give 
reasons  for  the  existence  of  this  surplus  value?  it  must  be 
answered  that  he  does  not  explain  it,  but  assumes  it.  Indeed 
the  decisive  assumption  has  merely  slipped  in  at  that  very  insig- 
nificant passage  where  Thiinen  says  that  the  possession  of  a 
capital  enables  the  worker  to  produce  a  surplus  product  of  40, 
36,  and  so  on,  after  deduction  of  what  is  necessary  to  give  back 
the  capital  " in  equally  good  condition "  and  " equal  in  value" 

If  we  look  more  closely  at  this  apparently  harmless  pro- 
position, we  find  it  to  contain  the  assumption  that  capital 
possesses  power  (1)  to  reproduce  itself  and  its  own  value,  and 
(2)  over  and  above  that,  to  produce  something  more.  If,  as  is 
here  assumed,  the  product  of  capital  is  always  a  sum  of  which 

1  To  avoid  misunderstandings  I  should  emphasise  that  Thiinen  assumes  the 
surplus  production  of  the  capital  last  applied  to  be  the  standard  for  the  whole 
amount  of  capital. 


170         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

one  constituent  alone  is  equal  to  the  whole  sacrifice  of  capital, 
then  it  needs  no  explanation  that  the  whole  sum  must  be 
worth  more  than  that  sacrifice,  and  Thiinen  is  quite  right  not 
to  trouble  with  any  further  explanation.  But  the  question  is, 
Was  Thiinen  justified  in  assuming  any  such  efficiency  in 
capital  ? 

To  my  mind  this  question  must  be  answered  distinctly  in 
the  negative.  It  is  true  that,  in  the  concrete  situation  first 
supposed  by  Thiinen,  that  assumption  may  appear  to  us  quite 
plausible.  We  find  nothing  at  all  out  of  place  in  assuming, 
not  only  that  the  hunter  equipped  with  bow  and  arrows  is 
able  to  bring  down  forty  more  head  of  game  than  he  could 
without  those  weapons,  but  that  he  might  also  have  time 
enough  over  to  keep  his  bow  and  arrows  in  good  condition,  or 
to  renew  them ;  so  that  his  renewed  capital  was  worth  as  much 
at  the  end  of  the  year  as  it  was  at  the  beginning.  But  is  it 
allowable  for  any  one  to  make  analogous  suppositions  in 
regard  to  a  complicated  condition  of  economical  affairs — that 
is,  a  condition  in  which  capital  is  too  various,  and  the  division 
of  labour  too  complete,  to  allow  of  the  capital  being  renewed 
by  the  labourer  who  has  been  using  it  ?  If  this  labourer 
must  pay  for  the  renewal  of  the  capital,  is  it  self-evident  that 
the  excess  in  products  obtained  by  the  help  of  the  capital  will 
exceed  the  costs  of  the  renewal,  or  the  value  of  the  capital 
consumed  ? 

Certainly  not.  There  are,  on  the  contrary,  two  conceivable 
possibilities  by  which  the  surplus  value  might  be  swept  away. 
First,  it  is  conceivable  that  the  great  productive  utility  assured 
by  possession  of  the  capital  increases  the  economical  estimate  of 
this  capital  so  much  that  its  value  comes  up  to  the  value  of 
the  expected  product ;  that,  e.g.  bows  and  arrows  which,  during 
the  whole  term  of  their  existence,  secure  the  obtaining  of  100 
head  more  of  game  become  equal  in  value  to  the  100  head. 
In  that  case  the  hunter,  in  order  to  replace  the  weapons  worn 
out,  would  be  obliged  to  give  to  the  maker  of  the  weapons  the 
whole  surplus  return  of  100  head  (or  the  value  of  the  100 
head),  and  would  retain  nothing  to  pay  surplus  value  or  interest 
to  the  man  who  lent  him  the  weapons. 

Or,  second,  it  is  conceivable  that  the  competition  in  the 
making  of  weapons  is  so  severe  that  it  presses  down  their  price 


CHAP,  in  THUNEN  171 

below  that  very  high  economical  estimate.  But  will  this  same 
competition  not  also,  of  necessity,  press  down  the  claims  which 
the  capitalist  may  impose  when  lending  the  weapons  ?  Lauder- 
dale  has  assumed  such  a  pressure ;  so  has  Carey ;  and  our 
experience  of  economical  life  leaves  no  doubt  that  such  a 
pressure  will  be  exerted.  Now  here  we  ask,  as  we  did  in  the 
case  of  Lauderdale,  Why  should  the  pressure  of  competition 
on  the  capitalist's  share  never  be  so  strong  as  to  press  down  its 
value  to  the  value  of  the  capital  itself  ?  Why  is  it  that  there 
is  not  so  great  a  quantity  of  any  particular  form  of  capital 
produced  and  employed  that  its  employment  returns  just 
enough  to  replace  the  capital  and  no  more  ?  But  if  this  were 
to  happen,  the  surplus  value,  and  with  it  the  interest,  would, 
in  this  case  also,  disappear. 

There  are,  in  short,  three  possibilities  in  the  relation  between 
the  value  of  the  product  of  capital  and  the  value  of  the  capital 
that  produces  that  product.  Either  the  value  of  the  product 
raises  the  value  of  the  real  capital  to  the  level  of  its  own 
value ;  or,  through  competition,  the  value  of  the  real  capital 
brings  down  the  value  of  the  return  to  capital  to  its  own  value  ; 
or,  finally,  the  share  of  capital  in  the  product  remains  steadily 
above  the  value  of  the  real  capital.  Thlinen  presupposes 
the  third  of  these  possibilities  without  either  proving  or 
explaining  it ;  and  thus,  instead  of  explaining  the  whole 
phenomenon  which  is  ostensibly  the  subject  of  explanation, 
he  has  assumed  it. 

Our  final  judgment  must,  therefore,  be  expressed  as  follows. 
Thlinen  gives  a  more  subtle,  more  consistent,  more  thorough 
version  of  the  Productivity  theory  than  any  of  his  predecessors, 
but  he  too  stumbles  at  the  most  critical  step ;  where  the 
problem  is  to  deduce  surplus  value  from  the  physical  pro- 
ductivity of  capital, — from  the  surplus  in  products, —  he 
includes  among  his  assumptions  the  thing  he  has  to  explain.1 

1  Not  to  burden  the  statement  in  the  text  by  more  difficulties  than 
I  am  compelled  to  bring  before  the  reader,  I  shall  put  a  few  considerations 
supplementary  to  the  above  criticism  as  a  note.  Thiinen  makes  two  essays 
which,  possibly,  may  be  interpreted  as  attempts  to  justify  the  above  assumption, 
and  thus  to  give  a  real  explanation  of  interest.  The  first  essay  is  the  remark  he  very 
often  makes  (pp.  Ill,  149),  that  capital  obtains  its  highest  rent  when  a  certain 
amount  of  it  has  been  laid  out,  and  that  rent  sinks  when  that  limit  is  overstepped  ; 
so  that  capitalist  producers  have  no  interest  in  pushing  their  production  beyond 
this  point.  It  is  possible  to  read  this  proposition  as  explanatory  of  the  fact  that 


172         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

Thiinen's  method  marks  a  high  level  of  solid  and  well 
considered  investigation.  Unfortunately  this  level  was  not 
long  maintained,  even  in  the  literature  of  his  own  nation. 
In  his  successors,  Glaser1  and  Roesler,2  who  wrote  on  the 

the  supply  of  capital  can  never  be  so  great  as  to  press  down  the  net  interest  to 
zero.  But  this  consideration  of  the  totality  of  profits  made  by  capitalists  has 
no  deciding  influence,  perhaps  no  influence  at  all  on  the  action  of  individual 
capitalists ;  it  cannot,  therefore,  prevent  the  further  growth  of  capital.  Every 
one  ascribes,  and  rightly  ascribes,  to  the  increase  of  capital  formed  by  his 
own  individual  saving,  an  infinitely  small  effect  on  the  height  of  the  general 
interest  rate.  On  the  other  hand,  every  one  knows  that  this  individual  saving 
has  a  very  notable  effect  in  increasing  the  income  that  he  individually  gets  in  the 
shape  of  interest.  For  this  reason  every  one  who  has  the  inclination,  and  who 
has  the  chance,  will  save,  undisturbed  by  any  such  considerations  ;  just  as  every 
landowner  improves  his  land  and  betters  his  methods  of  cultivation,  even  when 
he  knows,  as  a  matter  of  theory,  that  if  all  owners  were  to  do  the  same  it  would 
necessarily  be  followed,  if  the  state  of  population  remain  unchanged,  by  a  fall  in 
the  price  of  products  and,  notwithstanding  reduced  costs,  by  a  fall  in  rent. 

The  second  attempt  might  be  found  in  Thiinen's  note  quoted  above  on  p. 
166,  at  that  place  where  he  speaks  of  the  renewal  of  the  capital  by  the  borrower. 
There  Thiinen  points  out  that  "  in  this  inquiry  we  must  necessarily  direct  our 
attention  to  the  whole."  It  is  conceivable  that  this  warning  might  be  taken  as 
an  attempt  to  prove  that  the  phenomenon  supposed  in  the  text,  where  the  user 
of  capital  renews  it  by  his  own  labour,  and  beyond  that  obtains  a  surplus  product, 
maintains  its  validity  in  all  economic  circumstances,  provided  the  people  as  a  whole 
be  substituted  for  the  individual.  That  is  to  say,  even  if  the  single  individual 
cannot  by  his  own  personal  labour  renew  the  capital  consumed  by  him,  it  will 
hold,  as  regards  the  whole  people,  that  by  the  use  of  capital  men  are  able  to 
obtain  a  surplus  product,  and  "besides,  with  a  portion  of  the  saved  labour,  to 
replace  the  capital  consumed.  In  this  line  of  thought,  then,  we  might  see  a 
support  of  the  objection  I  made  in  the  text,  where  I  pronounced  Thiinen's 
hypothesis  to  be  applicable  only  to  the  simplest  cases,  and  to  be  inadmissible  in 
complicated  ones.  I  do  not  think  that  this  warning — to  look  at  the  wholes-was 
meant  by  Thiinen  in  the  sense  I  have  just  indicated.  But  if  it  was,  it  does  not 
take  anything  from  the  force  of  my  objection.  For  in  questions  of  distribution — 
and  the  question  of  interest  is  a  question  of  distribution — it  is  not  right  in  every 
circumstance  to  look  at  the  whole.  From  the  fact  that  society,  as  a  whole,  is 
able  by  the  help  of  capital  to  renew  this  capital  itself,  and  over  and  above  that, 
to  produce  more  products,  it  does  not  follow  at  all  that  there  should  be  interest 
on  capital.  For  this  plus  in  products  might  just  as  well  accrue  to  the  labourers 
as  surplus  wage  (they  being  certainly  as  indispensable  to  the  obtaining  of  it  as 
the  capital)  as  to  the  capitalist  in  the  shape  of  interest.  The  fact  is  that  interest, 
as  surplus  value  of  individual  return  over  individual  expenditure  of  capital, 
depends  on  the  individual  always  obtaining  particular  forms  of  capital  at  a  price 
which  is  less  than  the  value  of  the  surplus  product  obtained  by  means  of  them. 
But  the  consideration  of  society  as  a  whole  will  not  by  itself  guarantee  this  to 
the  individual ;  at  any  rate  it  is  not  self-evident  that  it  will  do  so.  If  it  were 
so  surely  there  would  not  be  so  many  theories  over  a  self-evident  thing  ! 

1  Die  allgemeine  Wirthschaftslehre  oder  Nationtd-Oekonomie,  Berlin,  1852. 

2  Kritik  der  Lehre  vom  Arbeitslohn,  1861.      Grundsatze  der    VoUcswirth- 


CHAP,  in  STRASBURGER  173 

same  lines,  we  see  a  distinct  falling  off  in  thoroughness  of 
conception  and  strictness  of  method. 

In  the  interval,  however,  the  Productivity  theories  had 
become  the  object  of  serious  and  weighty  attacks.  Rodbertus, 
in  a  quiet  but  effective  criticism,  had  accused  them  of  con- 
fusing questions  of  distribution  and  questions  of  production ; 
pointing  out  that,  in  assuming  the  portion  of  the  total  product 
called  profit  to  be  a  specific  product  of  capital,  they  had 
committed  a  petitio  principii  ;  at  the  same  time  enunciating  his 
own  formula  that  the  sole  source  of  all  wealth  was  labour. 
Then  Lasalle  and  Marx  had  varied  this  theme,  each  in  his 
own  way ;  the  one  with  vehemence  and  wit,  the  other  bluntly 
and  ruthlessly. 

These  attacks  called  out  a  reply  from  the  camp  of  the 
Productivity  theorists,  and  with  this  we  shall  conclude  a 
chapter  already  too  long.  It  comes  from  the  pen  of  a  still 
youthful  scholar,  but  it  commands  our  full  consideration ; 
partly  from  the  position  of  its  author,  who,  as  a  member  of  the 
Staatswissenschaftliche  Seminar  in  Jena,  and  therefore  in  close 
scientific  relation  with  the  leading  representatives  of  the  his- 
torical school  in  Germany,  may  well  be  taken  as  representing 
the  views  ruling  in  that  school ;  partly  from  the  circumstances 
which  called  out  that  reply.  For,  as  it  was  written  with  full 
knowledge  of  the  weighty  attacks  which  Marx  in  his  great  book 
had  directed  against  the  productivity  of  capital,  and  in  refuta- 
tion of  these  attacks,  we  are  justified  in  expecting  it  to  contain 
the  best  and  the  most  cogent  that  its  author,  after  full 
critical  consideration,  was  able  to  say  in  favour  of  the  Pro- 
ductivity theory. 

The  reply  is  to  be  found  in  two  essays  of  K.  Strasburger, 
published  in  1871  in  Hildebrand's  Jahrbucher  fur  National- 
Oekonomie  und  Statistik.1 

The  substance  of  his  theory  Strasburger  has  condensed  in 
the  second  of  these  essays  as  follows : — 

"  Capital  supplies  natural  powers  which,  while  accessible  to 

schaftslehre,  1864.  Vorlesungen  uber  Volkswirthschafi,  1878.  In  the  German 
edition  Professor  Bohm-Bawerk  has  devoted  several  pages  to  statement  and 
criticism  of  these  two  writers  ;  but  in  the  present  edition  he  wishes  me  to  omit 
them  as  of  little  importance. — W.  S. 

1  "  Zur  Kritik  der  Lehre  Marx'  vom  Kapitale  "  and  "Kritik  der  Lehre  vom 
Arbeitslohn,"  vols.  xvi.  and  xvii.  of  above. 


174         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

every  one,  can  often  be  applied  to  a  definite  production  only 
by  its  help.  Not  every  one  possesses  the  means  of  subordi- 
nating those  natural  powers.  The  power  of  the  man  who 
works  with  a  small  capital  is  spent  in  doing  things  that  are 
done  for  another  man  who  is  amply  supplied  with  capital  by 
natural  powers.  On  this  account  the  work  of  natural  powers, 
if  effected  through  the  medium  of  capital,  is  no  gift  of  nature;  it 
is  taken  into  account  in  exchange ;  and  lie  who  has  no  capital 
must  give  over  the  product  of  his  own  labour  to  the  capitalist 
for  the  work  of  the  natural  powers.  Capital,  therefore,  pro- 
duces values,  but  the  role  it  plays  in  production  is  quite 
different  from  that  played  by  labour." 

And  a  little  farther  on  (p.  329)  he  says:  "What  has 
been  already  said  will  show  how  we  understand  the  productivity 
of  capital.  Capital  produces  values  inasmuch  as  it  gets  natural 
powers  to  do  work  which  otherwise  would  have  to  be  done  by 
man.  The  productivity  of.  capital,  therefore,  rests  upon  its 
activity  in  production  being  distinct  from  that  of  living  labour. 
We  have  said  that  the  work  of  natural  powers  is  considered 
in  exchange  as  an  equivalent  of  human  labour.  Marx  main- 
tains the  contrary.  He  thinks  that,  if  one  worker  is  assisted 
in  his  work  by  natural  powers  more  than  another,  he  creates 
more  use  values — the  quantity  of  his  products  is  greater ;  but 
that  the  action  of  the  natural  powers  does  not  raise  the 
exchange  value  of  the  commodities  produced  by  him.  For 
refutation  of  this  view  it  is  sufficient  to  remember  what  we 
have  already  noted  above — that  it  is  not  every  one  who 
possesses  these  means  of  subordinating  natural  powers ;  those 
who  possess  no  capital  must  buy  its  work  by  means  of  their 
own  labour.  Or  if  they  work  by  the  help  of  another  man's 
capital,  they  must  give  over  to  him  a  share  of  the  value 
produced.  This  share  of  the  value  newly  produced  is  profit : 
the  drawing  of  a  certain  income  by  the  capitalist  is  founded 
on  the  nature  of  capital." 

If  we  condense  the  substance  of  this  still  further  we  get 
the  following  explanation. 

While  it  is  true  that  natural  powers  are  in  themselves 
gratuitous,  it  is  often  only  by  the  help  of  capital  that  they 
can  be  made  of  use.  Now  since  capital  is  only  available  in 
limited  quantity,  its  owners  are  able  to  obtain  a  payment  for 


CHAP,  in  STRASBURGER  175 

the  co-operation  of  the  natural  powers  thus  made  available. 
This  payment  is  profit.  Profit,  therefore,  is  explained  by  the 
necessity  of  paying  a  price  to  the  capitalists  for  the  co-operation 
of  natural  powers. 

What  success  has  this  theory  in  explaining  the  phenomena 
under  discussion  ? 

Strasburger's  premises  may  be  readily  conceded.  I  grant 
at  once  that  many  natural  powers  can  only  be  utilised  through 
the  mediation  of  capital ;  and  I  also  grant  that,  the  amount 
of  capital  being  limited,  the  owner  of  it  may  be  able  to  get 
paid  for  the  co-operation  of  the  natural  powers  thus  made 
available.  But  what  I  cannot  grant  is,  that  these  premises 
tell  us  anything  at  all  of  the  origin  of  interest.  It  is  a  hasty 
and  unreasoned  assumption  of  Strasburger  that  the  existence 
of  interest  follows  from  these  premises,  so  long  as  these  premises, 
in  their  very  nature,  lead  to  entirely  different  economical  pheno- 
mena. It  should  not  be  difficult  to  expose  Strasburger's  mistake. 

Only  one  of  two  things  is  here  possible :  either  capital  can 
only  be  had  in  such  a  limited  quantity  that  the  capitalists  can 
obtain  a  payment  for  the  powers  of  nature  made  available ;  or 
it  can  be  had  in  unlimited  quantity.  Strasburger's  theory 
assumes  the  former  of  these  to  be  the  case.  Accepting  this 
we  ask,  How  does  the  capitalist,  in  practical  business  life, 
actually  obtain  payment  for  the  natural  powers  ? 

It  would  be  a  hasty  petitio  principii  to  answer,  Simply 
by  pocketing  the  profit.  A  very  little  consideration  will  make 
it  clear  that,  if  interest  comes  from  the  payment  of  natural 
powers,  it  can  only  make  its  appearance  as  a  secondary  result 
of  more  complicated  economical  processes.  That  is  to  say, 
since  natural  powers  reside  in  capital,  it  is  obvious  they  can 
only  be  made  use  of  at  the  same  time  as  the  services  of 
capital  are  made  use  of.  But,  further,  since  capital  has  come 
into  being  through  the  expenditure  of  labour,  and  when 
used  either  perishes  in  a  single  use  or  wears  itself  out 
gradually,  it  is  clear  that,  wherever  the  services  of  capital  are 
made  use  of,  the  labour  that  is  embedded  in  the  capital  must 
be  paid  for  also.  The  payment  for  natural  powers,  therefore, 
can  only  accrue  to  the  capitalist  as  a  constituent  portion  of 
a  gross  return,  which,  over  and  above  that  payment,  contains 
a  second  payment  for  expenditure  of  labour. 


176         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

To  be  still  more  exact.  The  economical  process  by  which 
the  capitalist  receives  payment  for  natural  powers  is  the  sale  of 
the  services  of  his  capital  at  a  higher  price  than  that  which 
represents  the  expenditure  of  labour  made  in  producing  the 
concrete  capital  in  question.  If,  e.g.  a  machine  which  lasts  for 
a  year  is  made  at  the  expenditure  of  365  days  of  labour,  and 
if  the  customary  day's  wage  is  half  a  crown,  to  sell  the  daily 
services  of  the  machine  for  half  a  crown  would  only  just  pay 
for  the  labour  embedded  in  the  machine,  and  leave  nothing 
over  for  the  natural  powers  that  it  makes  available.  No 
payment  for  these  natural  powers  emerges  until  the  daily 
services  of  the  machine  are  paid  for  by  more  than  half  a  crown 
- — say  by  2s.  9d. 

Now  this  general  process  may  take  place  under  several 
different  forms. 

One  of  these  forms  is  when  the  owner  of  the  capital  uses 
it  himself  in  production  as  an  undertaker.  In  this  first  case, 
the  payment  of  the  total  services  of  capital  consists  in  that  pro- 
portion of  the  product  which  remains  over  after  deducting  the 
other  expenses  of  production,  such  as  use  of  ground  and  direct 
labour.  This  constitutes  the  "  gross  return  to  capital."  If  this 
gross  return,  calculated  by  the  day,  amounts  to  2s.  9d.,  and  if 
2s.  6d.  only  is  required  to  pay  for  the  labour  which  has  created 
the  capital  used  up  in  a  day,  the  surplus  of  3d.  a  day  represents 
the  payment  for  natural  powers.  It  must  not  be  taken  for 
granted,  however,  that  this  surplus  is  profit  on  capital  On 
that  we  shall  decide  later. 

In  a  second  and  more  direct  way,  the  services  of  capital 
may  obtain  payment  by  hiring.  If  our  machine  obtains  a 
day's  hire  of  2s.  9d.,  in  exactly  the  same  way  2s.  6d.  will 
represent  the  payment  of  the  labour  expended  in  making  the 
machine,  and  the  surplus  of  3d.  again  represents  the  payment 
for  natural  powers. 

But  there  is  still  a  third  way  in  which  a  man  may  part 
with  the  services  of  capital — that  is,  by  parting  with  the 
capital  itself;  which,  economically,  amounts  to  a  cumulative 
parting  with  all  the  services  which  that  capital  is  able  to 
perform.1  Now  in  this  case  will  the  capitalist  be  content  if 
he  is  compensated  for  the  labour  embedded  in  th,e  machine? 

1  See  Knies,  Kredit,  part  ii.  pp.  34,  37. 


CHAP,  in  STRASBURGER  177 

Will  he  not  also  demand  a  compensation  for  the  natural 
powers  that  are  made  available  by  its  use  ?  Of  course  he 
will.  There  is  absolutely  no  ground  to  conceive  why  he 
should  get  paid  for  natural  powers  in  the  case  of  a  successive 
parting  with  the  machine's  services,  and  not  in  the  case  of  a 
cumulative  parting  with  them ;  especially  when,  with  Stras- 
burger,  we  have  assumed  that  the  quantity  of  capital  is  so 
limited  that  he  can  compel  such  a  payment. 

What  form,  then,  will  the  payment  for  natural  powers 
take  in  this  case  ?  Quite  naturally  they  will  take  this  form : 
the  price  of  the  machine  will  rise  above  that  amount  which 
represents  the  customary  payment  of  the  labour  employed 
in  making  the  machine.  Therefore,  if  the  machine  has 
cost  365  days  of  labour  at  2s.  6d.  a  day,  its  purchase  price 
will  amount  to  more  than  365  half-crowns.  And  since  there 
is  no  reason  why,  in  cumulative  parting  with  the  services 
of  capital,  natural  powers  should  be  paid  for  at  a  cheaper 
rate  than  in  successive  partings,  we  may,  as  in  our  former 
suppositions,  assume  in  this  case  also  a  payment  for  natural 
powers  at  10  per  cent  of  the  l-.jour  payment.  Consequently 
the  capital  price  would  be  fixed  at  365  +  36'5  =  401'5  half- 
crowns,  or  £50  :  3  :  9. 

Now  what  about  interest  under  these  suppositions  ?  There 
is  no  difficulty  in  answering  this.  The  owner  of  the  machine, 
who  employs  it  in  his  own  undertaking,  or  hires  it  out,  draws 
2s.  9d.  a  day  for  its  services  during  the  year  which  it  lasts. 
That  yields  a  total  income  of  365  x  2s.  9d.  =  £50  :  3  :  9.  But 
since  the  machine  itself  is  worn  out  through  the  year's  use, 
and  its  capital  value  amounted  to  quite  £50:3:9,  there 
remains  as  surplus,  as  pure  interest,  nothing.  Although, 
therefore,  the  capitalist  has  got  paid  for  natural  powers,  there 
is  no  interest ;  a  clear  proof  that  the  cause  of  interest  must  lie 
in  something  else  than  payment  for  natural  powers. 

An  objection  may  very  probably  be  made  at  this  point. 
It  may  be  said,  It  is  not  possible  for  the  value  of  real  capital 
to  remain  so  high  that  its  producers  obtain  in  the  price  a 
premium  for  natural  powers;  in  such  a  case  the  production 
of  capital  would  be  too  remunerative,  and  would  certainly  call 
out  a  competition  that,  in  the  long  run,  would  press  down  the 
value  of  the  real  capital  to  the  value  of  the  labour  employed 


178        THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

in  its  production.  E.g.  if  a  machine  that  had  cost  365  days' 
labour  should,  in  consequence  of  natural  powers  being  made 
available  by  it,  fetch  a  price  of  £50:3:9;  then,  supposing 
the  usual  wage  in  other  employments  to  be  2s.  6d.  a  day,  the 
labour  directed  to  the  making  of  such  machines  would  be  more 
remunerative  than  any  other  kind  of  labour ;  as  a  consequence 
there  would  be  a  great  rush  into  this  branch  of  production, 
and  the  manufacture  of  those  machines  would  be  multiplied 
till  the  increased  competition  had  pressed  down  their  price  to 
365  half-crowns  per  machine.  At  the  same  time  the  advan- 
tage obtainable  by  the  labourer  from  their  use  would  be 
pressed  down  to  the  normal  standard. 

I  grant  at  once  the  possibility  of  such  an  occurrence. 
But  I  ask,  on  the  other  hand,  If  the  machines  have  become 
so  numerous,  and  competition  so  strong  that  their  producer 
is  glad  to  sell  them  at  a  bare  compensation  for  his  labour, 
and  can  calculate  nothing  for  the  use  of  the  natural  powers 
which  he  makes  available,  how  should  he,  in  hiring  out  these 
machines,  or  employing  them  himself,  be  able  all  at  once  to 
demand  something  for  natural  powers  ?  There  is  only  one 
alternative.  Either  the  machines  are  scarce  enough  to  allow 
of  a  calculation  for  natural  powers  ;  in  which  case  their  scarcity 
will  serve  as  well  in  selling  as  in  hiring,  and  the  capital  value 
of  the  machines  will  rise  to  the  point  of  absorption  of  gross 
interest,  if  no  other  thing  prevents  it.  Or  the  machines  are  made 
in  such  quantity  that  any  calculation  for  natural  powers  is 
made  impossible  by  the  pressure  of  competition ;  in  which  case 
it  will  be  as  true  for  the  hiring  as  for  the  selling,  and  gross 
interest  will  fall  till  it  is  once  more  absorbed  in  the  cost  of 
replacement — always  supposing,  again,  that  there  is  not  some 
factor,  outside  of  the  payment  for  natural  powers,  which  keeps 
the  two  quantities  apart. 

Thus  Strasburger,  like  many  of  his  predecessors,  has  missed 
the  very  point  which  was  to  be  explained.  He  shows,  perhaps, 
why  the  gross  interest  which  capital  yields  is  high — in  our 
illustration,  why  the  machine  yields  2s.  9  d.  instead  of  half-a- 
crown  per  day — but  he  does  not  show  why  the  value  of  the 
capital  itself  does  not  rise  in  the  same  proportion.  He  does 
not  explain  why  a  machine  which  yields  2s.  9d.  per  day  for 
365  days  is  .not  valued  at  365  X  2s.  9d.  =  £50:3:9,  but 


CHAP,  in  STRASBURGER  179 

only  at  365  half  -crowns  =  £4  7.  But  the  writer  who  means 
to  explain  net  interest  must  explain  just  this  difference  between 
the  value  of  the  capital  itself  and  the  sum  of  its  total  gross 
productiveness. 

It  is  characteristic  of  the  Indirect  Productivity  theories  that 
after  almost  seventy  years'  development  they  should  end  nearly 
at  the  same  point  as  that  from  which  they  started.  What 
Strasburger  teaches  in  the  year  1871  is  in  substance  almost 
exactly  what  Lauderdale  taught  in  1804.  The  "power  of 
capital  to  replace  labourers,"  which  power,  on  account  of  its 
scarcity  and  in  the  measure  of  its  scarcity,  enables  the  capitalist 
to  obtain  a  payment,  is  only  different  in  name  from  the  natural 
powers  which  the  possession  of  capital  makes  available,  and 
which,  equally  in  the  measure  of  the  scarcity  of  capital,  compel 
a  payment.  Here  as  there  is  the  same  confounding  of  gross 
interest  and  capital  value  on  the  one  side,  and  gross  interest 
and  net  interest  on  the  other ;  the  same  misinterpretation  of  the 
true  effects  of  premises  assumed ;  the  same  neglect  of  the  true 
causes  of  the  phenomenon  under  discussion. 

In  this  return  to  the  starting-point  is  seen  the  whole 
barrenness  of  the  development  that  lies  between.  This 
barrenness  was  no  accident.  It  was  not  simply  an  unfortunate 
chance  that  no  one  found  the  Open  Sesame  which  had  the  power 
to  discover  the  mysterious  origination  of  interest  in  the 
productivity  of  capital.  It  was  rather  that  on  the  road  to 
the  truth  a  wrong  turning  had  been  taken.  From  the  first  it 
was  a  hopeless  endeavour  to  explain  interest  wholly  and 
entirely  from  a  productive  power  of  capital.  It  would  be 
different  if  there  were  a  power  that  could  make  value  grow 
directly,  as  wheat  grows  from  the  field.  But  there  is  no  such 
power.  What  the  productive  power  can  do  is  only  to  create 
a  quantity  of  products,  and  perhaps  at  the  same  time  to  create 
a  quantity  of  value,  but  never  to  create  surplus  value. 
Interest  is  a  surplus,  a  remainder  left  when  product  of  capital 
is  the  minuend  and  value  of  consumed  capital  is  the  sub- 
trahend. The  productive  power  of  capital  may  find  its  result 
in  increasing  the  minuend.  But  so  far  as  that  goes  it  cannot 
increase  the  minuend  without  at  the  same  time  increasing  the 
subtrahend  in  the  same  proportion.  For  the  productive  power 


180         THE  INDIRECT  PRODUCTIVITY  THEORIES    BOOK  n 

is  undeniably  the  ground  and  measure  of  the  value  of  the 
capital  in  which  it  resides.  If  with  a  particular  form  of 
capital  one  can  produce  nothing,  that  form  of  capital  is  worth 
nothing.  If  one  can  produce  little  with  it,  it  is  worth  little ; 
if  one  can  produce  much  with  it,  it  is  worth  much,  and  so 
on ; — always  increasing  in  value  as  the  value  that  can  be 
produced  by  its  help  increases ;  i.e.  as  the  value  of  its  product 
increases.  And  so,  however  great  the  productive  power  of 
capital  may  be,  and  however  greatly  it  may  increase  the 
minuend,  yet  so  far  as  it  does  so,  the  subtrahend  is  increased 
in  the  same  proportion,  and  there  is  no  remainder,  no  surplus 
of  value. 

I  may  be  allowed,  in  conclusion,  one  more  comparison.  If 
a  log  is  thrown  across  a  flooded  stream  the  level  of  water  below 
the  log  will  be  less  than  the  level  of  water  above  the  log.  If 
it  is  asked  why  the  water  stands  higher  above  the  log  than 
below,  would  any  one  think  of  the  flood  as  the  cause  ?  Of  course 
not.  For  although  that  flood  causes  the  water  above  the  log 
to  stand  high,  it  tends  at  the  same  time,  so  far  as  that  is 
concerned,  to  raise  the  level  of  the  water  below  the  log  just 
as  high.  It  is  the  cause  of  the  water  being  "  high  " ;  what 
causes  it  to  stand  "  higher  "  is  not  the  flood,  but  the  log. 

Now  what  the  flood  is  to  the  differences  of  level,  the 
productive  power  of  capital  is  to  surplus  value.  It  may  be  an 
adequate  cause  of  the  value  of  the  product  of  capital  being 
high,  but  it  cannot  be  the  adequate  cause  that  the  product 
is  higher  in  value  than  the  capital  itself,  seeing  that  it  feeds 
and  raises  the  level  of  the  capital  in  the  same  way  as  it  does 
that  of  the  product.  The  true  cause  of  the  "  plus "  in  this 
case  also  is — a  log,  and  a  log  which  has  not  been  so  much 
as  mentioned  by  the  Productivity  theories  proper.  It  has 
been  sought  by  other  theories  in  various  things ;  sometimes  in 
the  sacrifice  of  a  use,  sometimes  in  the  sacrifice  of  abstinence, 
sometimes  in  a  sacrifice  of  work  devoted  to  make  capital, 
sometimes  simply  in  the  exploiting  pressure  of  capitalist  on 
labourer ;  but  so  far  as  we  have  gone  there  has  been  no  satis- 
factory recognition  of  its  nature  and  action.1 

1  Many  readers  Eiay  wonder  why  a  writer  who  shows  himself  so  very  decidedly 
opposed  to  the  Productivity  theory,  does  not  at  all  avail  himself  of  the  abundant 
and  powerful  support  given  by  the  socialist  criticism  ;  in  other  words,  why 


CHAP,  in       PRODUCTIVITY  AND  SURPLUS   VALUE  181 

I  do  not  dismiss  the  theory  with  the  argument  that  capital  itself  is  the 
product  of  labour,  and  thus  its  productivity,  whatever  else  it  be,  is  not  an 
originating  power.  The  reason  simply  is  that  I  attribute  to  this  argument  only 
a  secondary  importance  in  the  theoretical  explanation  of  interest.  The  state 
of  the  case  seems  to  me  to  be  as  follows.  No  one  will  question  that  capita], 
once  made,  manifests  a  certain  productive  effect.  A  steam-engine,  e.g.  is  in  any 
case  the  cause  of  a  certain  productive  result.  The  primary  theoretic  question 
suggested  by  this  state  of  matters  now  is,  Is  that  productive  capacity  of  capital 
— of  capital  made  and  ready — the  quite  sufficient  cause  of  interest  ?  If  this 
question  were  answered  in  the  affirmative,  then  of  course,  in  the  second  place, 
would  come  the  question  whether  the  productive  power  of  capital  is  an  inde- 
pendent power  of  capital,  or  whether  it  is  only  derived  from  the  labour  which 
has  produced  the  capital ;  in  other  words,  whether  (manual)  labour,  through 
the  medium  of  capital,  should  not  be  considered  the  true  cause  of  interest.  But 
having  answered  the  first  question  in  the  negative,  I  have  no  occasion  to  enter 
on  the  secondary  question,  whether  the  productive  power  of  capital  is  an 
originating  power  or  not.  Besides,  in  a  later  chapter  I  shall  have  the  opportunity 
of  taking  a  position  on  the  latter  question. 


BOOK  El 

THE   USE   THEOEIES 


CHAPTEE    I 

THE    USE   OF   CAPITAL 

THE  Use  theories  are  an  offshoot  of  the  Productivity  theories,  but 
an  offshoot  which  quickly  grew  into  an  independent  life  of  its  own. 

They  attach  themselves  directly  to  that  idea  on  which  the 
Productivity  theories  proper  got  into  difficulties, — the  idea  that 
there  is  an  exact  causal  connection  between  the  value  of  pro- 
ducts and  the  value  of  their  means  of  production.  If,  as 
economists  began  to  recognise,  the  value  of  every  product  is,  as 
a  rule,  identical  with  the  value  of  the  means  of  production 
expended  in  making  it,  then  every  attempt  to  explain  surplus 
value  by  the  productive  power  of  capital  must  fail ;  for  the 
higher  that  power  raises  the  value  of  the  product,  the  higher 
must  it  raise  the  value  of  the  capital  itself  as  identical  with  it. 
The  latter  must  follow  the  former  with  the  fidelity  of  a 
shadow,  and  there  should  be  no  possibility  of  the  slightest 
space  between  them. 

Nevertheless  there  is  a  space. 

This  line  of  thought  suggested  almost  of  itself  a  new  way 
of  explanation.  If,  on  the  one  hand,  it  is  true  that  the  value 
of  every  product  is  identical  with  the  value  of  the  means  of 
production  sacrificed  in  making  it,  and  if,  on  the  other  hand, 
it  is  observed  that,  notwithstanding  this,  the  product  of  capital 
is  regularly  greater  than  the  value  of  the  real  capital  thus 
sacrificed,  the  conviction  almost  forces  itself  on  us  that  this 
real  capital  may  not  represent  all  the  sacrifice  that  is  made 
to  obtain  a  product.  Perhaps,  besides  this  real  capital,  there  is 
something  else  that  must  be  expended  at  the  same  time ;  a 
something  which  claims  a  part  of  the  value  of  the  product, — 
the  surplus  value  we  are  inquiring  about. 


186  THE  USE  OF  CAPITAL  BOOK  HI 

This  Something  was  sought  and  found.  Indeed,  we  might 
say  that  more  than  one  was  found.  Three  distinct  opinions 
were  put  forward  as  to  its  nature ;  and  out  of  the  one  funda- 
mental idea  there  grew  three  distinct  theories — the  Use  theory, 
the  Abstinence  theory,  and  the  Labour  theory.  Of  these  the 
one  that  kept  most  closely  by  the  Productivity  theories,  and 
indeed  made  its  first  appearance  simply  as  an  extension  of 
them,  is  the  Use  theory. 

The  fundamental  idea  of  the  Use  theory  is  the  following. 
Besides  the  substance  of  capital,  the  use  (Gebrauch  or  Nutzung} 
of  capital  is   an  object  of  independent  nature  and  of  inde- 
pendent value.     To  obtain  a  return  for  capital  it  is  not  enough  I 
to  sacrifice  substance  of  capital  alone ;  the  use  of  the  capital  I 
employed   must   be   sacrificed  also  during  the  period  of  the  | 
production.      Now  since,  as  a  matter  of  theory,  the  value  of 
the  product  is  equal  to  the  sum  of  the  values  of  the  means 
of  production  spent  in  making  it,  and   since,  in   conformity 
with  this  principle,  the  substance  of  capital  and  the  use  of 
capital,  taken  together,  are  equal  to  the  value  of  the  product, 
this  product  naturally  must  be  greater  than  the  value  of  the 
substance  of  capital  by  itself.     In  this  way  the  phenomenon 
of  surplus  value  is  explained  as  being  the  share  that  falls  to 
the  part  sacrifice,  the  "  use  of  capital." 

This  theory  of  course  assumes  that  capital  is  productive, 
but  less  emphatically,  and  in  a  way  that  is  quite  free  from 
ambiguity.  It  assumes  that  the  accession  of  capital  to  a  given 
amount  of  labour  assists  in  obtaining  a  relatively  greater  product 
than  labour,  unsupported  by  capital,  could  obtain.  It  is  not 
necessary,  however,  that  the  capitalist  process  of  production 
on  the  whole,  embracing  as  it  does  both  the  making  and  the 
employing  of  capital,  should  be  profitable.  If,  e.g.  a  fisherman 
makes  a  net  by  100  days'  labour,  and  with  the  net  catches 
500  fish  in  the  100  days  during  which  the  net  lasts,  while 
another  fisherman  without  any  net  has  been  able  to  catch 
three  fish  a  day  for  the  200  days,  evidently  the  total  process 
has  not  been  a  profitable  one.  Notwithstanding  the  employ- 
ment of  capital,  only  500  fish  have  been  caught  by  an  outlay 
of  200  days'  labour,  while  in  the  other  case  600  fish  have 
been  caught.  Nevertheless,  according  to  the  Use  theory — 
as  also  according  to  facts — the  net  once  made  must  bear 


CHAP,  i  ACCORDING  TO   THE   USE  THEORY  187 

interest.  For,  once  made,  it  helps  to  catch  more  fish  than 
could  be  caught  without  a  net,  and  this  fact  is  sufficient  to 
assure  the  surplus  return  of  200  fish  being  calculated  as  due 
to  its  assistance.  But  it  is  only  calculated  as  such  in 
association  with  its  use.  There  will  be  ascribed,  therefore,  a 
part  return  of,  perhaps  190  fish,  or  their  value,  to  the  substance 
of  the  net ;  the  remainder  will  be  ascribed  to  the  use  of  the 
net.  Thus  emerges  a  surplus  value  and  an  interest  on  capital. 

If  this  very  moderate  amount  of  physical  productivity  on 
the  part  of  capital  is  sufficient,  according  to  the  Use  theory,  to 
cause  surplus  value,  it  is  self-evident  that  this  theory  in  no 
way  assumes  any  direct  value  productivity;  indeed,  rightly 
understood,  it  really  excludes  it. 

The  relation  of  the  Use  theories  to  the  productive  power 
of  capital  will  not,  however,  be  found  stated  so  clearly  in 
the  writings  of  their  representatives  as  I  have  thought  neces- 
sary to  state  it.  On  the  contrary,  indeed,  appeals  to  the 
productive  power  of  capital  long  accompany  the  development 
of  the  Use  theory  proper,  and  we  are  very  often  left  in  doubt 
whether  the  author  relies,  for  his  explanation  of  surplus  value, 
more  on  the  productive  power  of  capital  or  on  the  arguments 
peculiar  to  the  Use  theory.  It  is  only  gradually  that  the  Use 
theories  have  cut  themselves  clear  of  this  confusion  with  the 
Productivity  theory,  and  developed  in  complete  independence.1 

In  what  follows  I  mean,  first,  to  show  the  historical 
development  of  the  Use  theories.  Criticism  of  them  I  shall 
divide  into  two  parts.  Such  critical  remarks  as  refer  simply 
to  individual  defects  in  individual  theories  I  shall  include  at 
once  with  the  historical  statement.  My  critical  estimate  of 
the  school  as  a  whole  will  follow  in  a  separate  chapter. 

1  The  hesitating  way  in  which  many  of  the  Use  theorists  have  expressed 
themselves  is  to  blame  in  great  part  for  the  fact  that,  up  till  now,  so  little, 
attention  has  been  paid  to  the  independent  existence  of  these  theories.  Their 
representatives  were  usually  classed  with  the  adherents  of  the  Productivity 
theories  proper,  and  it  was  considered  that  the  former  had  been  confuted  when 
only  the  latter  had  been.  From  what  I  have  said  above  it  will  be  seen  that 
this  is  quite  erroneous.  The  two  groups  of  theories  rest  on  essentially  distinct 
principles. 


CHAPTEE  II 

HISTORICAL    STATEMENT 

THE  development  of  the  Use  theory  is  associated  for  the  most 
part  with  three  names.  J.  B.  Say  first  suggested  it ;  Hermann 
worked  out  the  nature  and  essence  of  the  Uses,  and  so  put 
the  theory  on  a  firm  foundation ;  Menger  gave  it  the  most 
complete  form  of  which,  in  my  opinion,  it  is  capable.  All  the 
writers  that  come  between  take  one  or  other  of  these  as  their 
model,  and  although  some  of  them  are  well  worthy  of 
attention,  they  are  of  secondary  importance  to  those  just 
mentioned. 

There  are  two  things  that  strike  us  in  looking  over  the 
list  of  these  writers.  The  first  is  that,  with  the  single  excep- 
tion of  Say,  the  working  out  of  the  Use  theory  has  been  done 
entirely  by  German  science.  And  the  other  is  that  in 
Germany  this  theory  seems  to  have  attracted  the  marked 
preference  of  our  most  thorough  and  acute  thinkers.  At  least 
we  find  represented  here  a  remarkable  number  of  the  best 
names  in  German  science. 

We  have  already  considered  at  length  the  doctrine  of  Say, 
the  founder  of  this  school.1  In  his  writings  Productivity 
theory  and  Use  theory  grow  up  side  by  side ;  so  much  so 
that  neither  seems  to  come  before  or  be  subordinate  to  the 
other ;  and  the  historian  of  theory  has  no  alternative  but  to 
consider  Say  as  the  representative  of  both  theories.  As 
basis  for  what  follows  I  shall  recapitulate  very  briefly  the 
line  of  thought  followed  in  such  of  his  ideas  as  belong  properly 
to  the  Use  theory. 

The  fund  of  productive  capital  provides  productive  services. 

1  See  above,  p.  120. 


CHAP,  ii  SA  Y  189 

These  services  possess  economical  independence,  and  are  the 
objects  of  independent  valuation  and  sale.  Now  as  these 
services  are  indispensable  for  production,  and  at  the  same  time 
are  not  to  be  obtained  from  their  owners  without  compensation, 
the  prices  of  all  products  of  capital,  under  the  play  of  supply 
and  demand,  must  adjust  themselves  in  such  a  way  that,  over 
and  above  the  compensation  to  the  other  factors  in  production, 
they  contain  the  ordinary  compensation  for  these  productive 
services.  Thus  the  "  surplus  value  "  of  the  products  of  capital, 
and  with  it  interest,  originates  in  the  necessity  of  paying 
independently  for  this  independent  sacrifice  in  production,  the 
"  services  of  capital." 

The  most  signal  weakness  of  this  doctrine,  apart  from  its 
being  continually  traversed  by  contradictory  expressions  of  the 
Naive  Productivity  theory,  lies,  perhaps,  in  the  confusion  in 
which  Say  leaves  the  conception  of  productive  services.  A 
writer  who  makes  the  independent  existence  and  remuneration 
of  such  services  the  axis  on  which  his  interest  theory  turns 
is,  at  least,  bound  to  express  himself  clearly  as  to  what  should 
be  understood  by  these  terms.  Not  only  has  Say  omitted 
to  do  this,  as  we  have  already  seen,  but  the  few  indications 
that  he  does  give  point  in  an  entirely  wrong  direction. 

From  the  analogy  that  Say  repeatedly  draws  between  the 
services  of  capital  on  the  one  hand,  and  human  labour,  as 
also  the  activity  of  the  "  natural  fund,"  on  the  other,  we  might 
conclude  that,  by  the  services  of  capital,  Say  would  -wish  us  to 
understand  the  putting  in  motion  of  the  natural  powers  that 
reside  in  real  capital;  e.g.  the  physical  actions  of  beasts  of 
burden,  of  machines,  the  setting  free  of  the  heating  power  in 
coal,  etc.  But  if  this  is  what  he  means,  then  the  whole 
argument  is  on  the  wrong  track.  For  this  putting  in  motion 
of  natural  powers  is  nothing  else  than  what,  in  another  place, 
I  have  called  the  "  Material  Services  "  (Nutzlcistungcn)  of  goods.1 
It  is  what  our  current  science,  with  its  unsuggestive  and 
lamentably  obscure  vocabulary,  has  termed  .the  Nutzv.ng  of 
capital,  meaning  the  gross  use  of  capital.  It  is  this  that  is 
remunerated  by  the  undiminished  gross  return  sometimes  called 
Hire.2  In  a  word,  it  is  the  substance  of  gross  interest,  not  of 

1  See  my  Eechte  und  Verhaltnisse,  p.  57.     More  exactly  also  below. 

•  It  will  be  well  to  remember  that  the  word  Hire  (Miethzins  in  Gorman)  is 


190  HISTORY  OF  THE  USE  THEORY  BOOK  in 

net  interest,  and  it  is  net  interest  with  which  we  are  here 
concerned.  If  this  is  what  Say  actually  meant  by  his 
services  productifs,  then  his  whole  theory  has  missed  the  mark  ; 
for  it  is  only  gross  interest  that  emerges  from  the  necessity  of 
paying  for  productive  services,  not  net  interest ;  and  it  is  net 
interest  that  is  the  object  of  explanation.  But  if  by  the  services 
productifs  he  meant  anything  else,  he  has  left  us  absolutely  in 
the  dark  regarding  the  nature  of  it,  and  the  theory  built  on  its 
existence  is,  to  say  the  least  of  it,  incomplete. 

In  any  case,  then,  Say's  theory  is  not  satisfactory.  Yet  it 
pointed  out  a  new  way  which,  when  properly  followed,  led 
much  nearer  the  heart  of  the  interest  problem  than  the  barren 
Productivity  theories  had. 

The  two  writers  who  come  next  after  Say  can  scarcely  be 
said  to  have  done  much  towards  any  such  development.  One 
of  them,  indeed,  Storch,  fell  very  far  short  of  the  point  to 
which  Say  had  brought  the  theory. 

Storch 1  professes  to  follow  Say,  and  often  quotes  him,  but 
he  only  takes  Say's  results.  He  does  not  use  his  argu- 
ment, and  he  has  not  supplied  the  want  by  one  of  his  own. 
It  is  a  characteristic  symptom  of  the  barren  way  in  which 
Storch  deals  with  our  subject  that  he  does  not  explain  loan 
interest  by  natural  interest,  but  natural  by  loan  interest. 

He  starts  by  saying  (p.  212)  that  capital  is  a  "source  of 
production  " — although  a  secondary  source — along  with  nature 
and  labour,  the  two  primary  sources  of  goods.  The  sources  of 
production  become  sources  of  income  inasmuch  as  they  often 
belong  to  different  persons;  and  they  must  first,  through  a  loan 
contract  be  put  at;  the  disposal  of  the  person  who  unites  them 

properly  used  of  the  lending  of  a  durable  article  where  the  sum  paid  monthly  or 
yearly  includes  wear  and  tear.  If  we  pay  20s.  a  month  for  the  hire  of  a  piano,  it 
is  understood  that  the  piano  suffers  so  much  by  our  use,  and  that  the  20s.  covers 
that  deterioration.  We  are  not  expected  to  repair  the  damage  done  to  the  piano, 
nor  to  pay  an  extra  sum  for  repairing  it.  That  is  to  say,  the  20s.  per  month  is  a 
gross  interest,  which  includes  the  replacement  of  the  capital.  If  in  three  years 
the  music-seller  gets  £36  in  hires  for  an  ordinary  piano,  it  is  evident  that  this  is 
far  more  than  interest.  The  true  interest  (net  interest)  is  found  by  deducting  the 
capital  value  of  the  piano.  Sky  that  that  value  was  £30,  and  that  in  three  years' 
time  the  piano  is  worn  out ;  then  £6  is  the  interest  obtained  by  the  music-seller 
over  a  period  of  three  years  on  H  capital  sum  of  £30.  But  this  distinction, 
evident  at  a  first  glance  in  a  concrete  example,  has  been  overlooked,  as  we  see, 
by  more  than  one  economist. — W.  S. 

1  Cours  d' Economic  Politique,  vol.  i.  Paris,  1823. 


CHAP,  ii  STORCH  191 

in  productive  co-operation.  For  this  they  receive  remuneration, 
and  this  remuneration  goes  as  income  to  the  lender.  "The 
price  of  a  loaned  piece  of  land  is  called  rent;  the  price  of  loaned 
labour  is  called  wages ;  the  price  of  a  loaned  capital  is  called 
sometimes  interest,  sometimes  hire." * 

After  Storch  has  thus  given  us  to  understand  that  lending 
out  of  productive  powers  is  the  regular  way  of  getting  an 
income,  he  adds,  by  way  of  postscript,  that  a  man  can  obtain  an 
income  even  if  he  himself  employs  the  productive  powers.  "  A 
man  who  cultivates  his  own  garden  at  his  own  expense  unites 
in  his  own  hands  the  land,  the  labour  and  the  capital  Never- 
theless "  (the  word  is  significant  of  Storch's  conception)  "  he 
draws  from  the  first  a  land  rent ;  from  the  second  a  subsist- 
ence; from  the  third  an  interest  on  capital."  The  sale  of 
his  products  must  return  him  a  value  which  is,  at  least,  equiv- 
alent to  the  remuneration  he  would  have  got  from  the  land, 
labour,  and  capital  if  he  had  lent  them ;  eptherwise  he 
will  stop  cultivating  the  garden,  and  lend  out  his  productive 
powers.2 

But  why  should  it  be  possible  for  him  to  get  a  remuneration 
for  the  productive  powers,  particularly  for  the  capital  he  lends  ? 
Storch  does  not  take  much  trouble  to  answer  this  question. 
"Since  every  man,"  he  says  on  p.  266,  "is  compelled  to  eat 
before  he  can  obtain  a  product,  the  poor  man  finds  himself 
in  dependence  on  the  rich,  and  can  neither  live  nor  work  if  he 
does  not  receive  from  him  some  of  the  food  already  in  exist- 
ence, which  food  he  promises  to  replace  when  he  has  completed 
his  product.  These  loans  cannot  ~be  gratuitous,  for,  if  they 
were,  the  advantage  would  be  entirely  on  the  side  of  the  poor 
man,  and  the  rich  would  have  no  interest  whatever  in  making 
the  bargain.  To  get  the  rich  man's  consent,  then,  it  must  be 
agreed  that  the  owner  of  the  accumulated  surplus  or  capital 
draws  a  rent  or  a  profit,  and  this  rent  will  be  in  proportion  to 

1  These  last  words  are  .a  quotation  from  Say. 

2  Even  in  discussing  the  question  of  the  rate  of  interest  this  perversion 
of  the  relation  of  natural  and  loan  interest  reappears.     On  p.   285   Storch 
makes  interest  determined  by  the  proportion  between  the  supply  of  the  capitalists 
having  capitals  to  lend,  and  of  the  undertakers  wishing  to  hire  these  capitals. 
And  on  p.  286  he  says  that  the  rate  of  the  income  of  those  persons  who 
themselves  employ  their  productive  powers  -adapts  itself  to  that  rate  which 
is  determined  by  the  demand  and  supply  of  loaned  productive  powers. 


192  HISTORY  OF  THE  USE   THEORY  BOOK  in 

the  amount  of  the  capital  advanced."  This  is  an  explanation 
which,  in  economical  precision,  leaves  almost  everything  to  be 
desired. 

Of  a  second  follower  of  Say,  Nebenius,  it  cannot  at  any 
rate  be  said  that  the  theory  received  any  harm  at  his  hands. 

In  his  celebrated  work  on  Public  Credit,1  Nebenius  has 
devoted  a  brief  consideration  to  our  subject,  and  given  a  some- 
what eclectic  explanation  of  it.  In  the  main  he  follows  Say's 
Use  theory.  He  accepts  his  category  of  the  productive 
services  of  capital,2  and  bases  interest  on  the  fact  that  these 
services  obtain  exchange  value.  But  in  course  of  the  argument 
he  brings  out  a  new  element,  in  pointing  to  "  the  painful  priva- 
tions and  exertions " 3  which  the  accumulation  of  capital 
requires.  In  the  long  run  he  shows  ample  agreement  with 
the  Productivity  theory.  Thus  on  one  occasion  he  remarks 
that  the  hire  which  the  borrower  has  to  pay  for  a  capital 
which  he  employs  to  advantage  may  be  considered  as  the 
fruit  of  that  capital  itself  (p.  21);  and,  on  another  occasion,  he 
emphasises  the  fact  that, "  in  the  reciprocal  valuation  by  which 
the  hire  is  determined,  it  is  the  productive  power  of  the  capitals 
that  forms  the  chief  element"  (p.  22). 

Nebenius,  however,  does  not  enter  on  any  more  exact 
explanation  of  his  interest  theory ;  nor  does  he  analyse  the 
nature  of  the  productive  services  of  capital,  obviously  taking 
the  category  without  question  from  Say. 

At  this  point  I  may  mention  a  third  writer  who  rose  into 
prominence  later — writing  long  after  Hermann — but  never 
got  beyond  Say's  standpoint;  Carl  Mario,  in  his  System  der 
Wdtokonomie.* 

1  Oeffcntliche  Credit.     I  quote  from  the  second  edition,  1829. 

2  See,  e.g.  pp.  19,  20. 

3  "On  the  one  hand,  the  necessity  and  the  usefulness  of  capital  for  the  busi- 
ness of  production  in  its  most  multifarious  forms,  and  on  the  other,  the  hardship 
of  the  privations  to  which  we  owe  its  accumulation  ;  these  lie  at  the  root  of  the 
exchange  value  of  the  services  rendered  by  capital.     They  get  their  compensation 
in  a  share  of  the  value  of  the  products,  to  the  production  of  which  they  have  co- 
operated "  (p.  19). 

"The  services  of  oapital  and  of  industry  necessarily  have  an  exchange  value  ; 
the  former  because  capitals  are  only  got  through  more  or  less  painful  privations  or 
exertions,  and  people  can  be  induced  to  undergo  such  only  by  getting  an  adequate 
share.  ..."  (p.  22) 

4  Kassel,  1850-57. 


CHAP,  ii  NEBENIUS,  MARLO  193 

In  striking  contrast  with  the  imposing  plan  of  this  work, 
and  the  supreme  importance  which,  from  its  very  nature,  the 
interest  problem  should  have  had  in  it,  is  the  extremely 
slight  treatment  which  the  problem  actually  received.  One 
may  search  these  bulky  volumes  in  vain  for  any  connected 
and  thorough  inquiry  into  the  origin  of  interest ;  indeed  for  any 
real  interest  theory  at  all.  If  it  were  not  that  Mario  in  the 
course  of  his  polemic  against  his  opponents — particularly 
against  the  doctrine  that  labour  is  the  sole  source  of  value * — 
had  to  some  extent  marked  out  his  standpoint,  what  he  said 
positively  on  the  question  of  interest  would  not  be  enough  to 
indicate,  in  the  very  slightest  degree,  what  his  opinions 
were, — to  say  nothing  of  introducing  the  uninitiated  to  the 
nature  of  the  problem. 

Mario's  views  are  a  mixture  of  Use  and  Productivity 
theories  taken  from  Say.  He  recognises,  with  special 
emphasis  on  the  necessity  of  their  working  together,2 
two  sources  of  wealth — natural  power  and  labour  power — 
and  from  this  comes  his  conception  of  capital  as  "  perfected 
natural  power." 3  Corresponding  to  the  two  sources  of  wealth 
are  two  kinds  of  income — interest  and  wages.  "  Interest  is  the 
compensation  for  the  productive  or  consumptive  use  of  parent- 
wealth."  "If  we  apply  forms  of  wealth  as  instruments  of 
work,  they  contribute  to  production,  and  so  render  us  a  service. 
If  we  apply  them  to  purposes  of  consumption  we  not  only  con- 
sume the  wealth  itself,  but  also  the  service  which  it  might 
have  rendered  if  productively  employed.  If  we  employ  wealth 
belonging  to  other  people,  we  must  compensate  the  owners  for 
the  productive  service  which  it  might  have  rendered.  The  com- 
pensation for  this  is  variously  called  interest  or  rent.  If  we 
employ  our  own  goods  we  ourselves  draw  the  interest  which 
they  bear." 4  It  is  a  poor  epitome  of  Say's  old  theory. 

This  unsatisfactory  repetition  of  old  arguments  is  still  more 
wonderful  when  we  consider  that  in  the  interval  a  very 
great  stride  had  been  taken  towards  the  perfecting  of  the 
Use  theory  by  Hermann's  Staaiswiriscliaftliche+Unterswhungen, 
published  in  1832. 

1  i.  sect.  ii.  p.  246,  etc.,  and  many  other  places. 

2  ii.  p.  214,  and  other  places.  *  ii.  p.  255. 
4  ii.  pp.  633,  660. 

0 


194  HISTORY  OF  THE   USE  THEORY  BOOK  in 

This  work  forms  the  second  milestone  in  the  development 
of  the  Use  theory.  Out  of  Say's  scanty  and  contradictory 
suggestions — which  he  accepts  with  flattering  recognition l — 
Hermann  has  built  up  a  stately  theory ;  the  same  care  ex- 
pended on  its  foundations  as  on  its  details.  And  it  is  of  no 
small  importance  that  this  well-constructed  theory  has  become 
a  vital  part  of  Hermann's  entire  system.  It  permeates  the 
whole  of  his  lengthy  work  from  end  to  end.  There  is  not  a 
chapter  in  it  where  a  considerable  space  is  not  given  to  its 
statement  or  application.  There  is  not  a  passage  in  it  where 
the  author  allows  himself  to  be  untrue  to  the  position  which 
his  acceptance  of  the  Use  theory  compels  him  to  take. 

In  what  follows  I  can  only  briefly  state  the  principal  points 
of  Hermann's  theory,  although  it  certainly  deserves  our  more 
thorough  acquaintance.  In  doing  so  I  shall  confine  myself 
for  the  most  part  to  the  second  edition  of  the  Staatswirtschaft- 
licke  Untersuchungcn  (1874),  in  which  the  theory  is  substanti- 
ally unchanged,  and  is  at  the  same  time  put  more  definitely 
and  in  a  more  complete  shape. 

The  foundation  of  Hermann's  theory  is  his  conception  of 
the  independent  use  of  goods.  Quite  in  contrast  to  Say,  who 
tries  to  gloss  over  the  nature  of  his  services  productifs  with  a 
few  analogies  and  metaphors,  Hermann  takes  all  possible  care 
in  explaining  his  fundamental  conception. 

He  introduces  it  first  in  the  theory  of  Goods,  where  he 
speaks  of  the  different  kinds  of  usefulness  that  goods  have. 
"  Usefulness  may  be  transitory  or  it  may  be  durable.  It  is 
partly  the  nature  of  the  goods,  partly  the  nature  of  the  use 
that  determines  this  point.  Transitory,  often  momentary  use- 
fulness belongs  to  freshly  cooked  food,  and  to  many  kinds  of 
drink.  The  doing  of  a  service  has  only  a  momentary  use 
value,  yet  its  result  may  be  permanent,  as  is  the  case  in 
tuition,  in  a  physician's  advice,  etc.  Land,  dwellings,  tools, 
books,  money,  have  a  durable  use  value.  Their  use,  for  the 
time  that  they  last  (called  in  German  their  Nutzung)?  can  be 
conceived  of  as  a  good  in  itself,  and  may  obtain  for  itself  an 
exchange  value  which  we  call  interest." 

1  See  first  edition,  p.  270,  in  the  note. 

8  "  Ihr    Gebrauch    wiihrend    dessen    sie    fortbestehen,    wird    ihr  Nutzung 
gennant,"  etc. 


CHAP,  ii  HERMANN  195 

But  not  only  are  durable  goods,  but  transitory  and  consum- 
able goods  also,  capable  of  affording  a  durable  use.  Since  this 
proposition  is  of  cardinal  importance  in  Hermann's  theory,  I 
give  his  exposition  of  it  in  his  own  words : — 

"  Technical  processes  are  able,  throughout  all  the  change 
and  combination  of  the  usefulness  of  goods,  to  preserve  the  sum 
of  their  exchange  values  undiminished,  so  that  goods,  although 
successively  taking  on  new  sha-pes,  still  continue  unchanged  in 
value.  Iron  ore,  coal,  labour,  obtain,  in  the  form  of  pig  iron, 
a  combined  usefulness  to  which  they  all  three  contribute 
chemical  and  mechanical  elements.  If,  then,  the  pig  iron 
possesses  the  exchange  value  of  the  three  exchange  goods 
employed,  the  earlier  sum  of  goods  persists,  bound  up  qualita- 
tively in  the  new  usefulness,  added  together  quantitatively  in 
the  exchange  value. 

"  To  goods  that  are  of  transitory  material,  technical  pro- 
cesses, through  this  change  of  form,  add  economical  durability 
and  permanence.  This  persistence  of  usefulness  and  of  ex- 
change value  which  is  given  to  goods  otherwise  transitory  by 
technical  change  of  form,  is  of  the  greatest  economical  import- 
ance. The  amount  of  durable  useful  goods  becomes  thereby 
very  much  greater.  Even  goods  of  perishable  material  and  of 
only  temporary  use,  by  constantly  changing  their  shapes  while 
retaining  their  exchange  value,  become  re-created  so  that  their 
use  becomes  lasting.  Thus,  as  it  is  in  the  case  of  durable 
goods,  so  it  is  in  the  case  of  goods  changing  their  form 
qualitatively,  while  retaining  their  exchange  value ;  this  use 
may  be  conceived  of  as  a  good  in  itself,  as  a  use  (Nutzung} 
which  may  itself  obtain  exchange  value."  I  shall  return  to 
this  notable  passage  later  on. 

Hermann  then  makes  use  of  this  analysis  to  introduce  his 
conception  of  capital,  which  is  based  altogether  on  that  of  its  use. 

"  Lasting  or  durable  goods,  and  perishable  goods  which 
retain  their  value  while  changing  their  shape,  may  thus  be 
brought  under  one  and  the  same  conception ;  they  are  the 
durable  basis  of  a  use  which  has  exchange  value.  Such  goods 
we  call  capital." l 

The   bridge   between    these    preliminary   conceptions   and 

1  P.  111.     Hermann  of  course  does  not  always  remain  quite  faithful  to  the 
conception  here  given.     In  this  passage  he  calls  the  goods  which  form  the  basis 


196  HISTORY  OF  THE   USE   THEORY  BOOK  in 

Hermann's  interest  theory  proper  is  formed  by  the  proposition 
that,  in  economic  life,  the  uses  of  capital  do  regularly  receive 
the  exchange  value,  of  which,  as  independent  quantities,  they 
are  capable.  Hermann  does  not  treat  this  proposition  with  the 
emphasis  adequate  to  its  importance.  Although  everything 
further  depends  on  it,  he  neither  puts  it  formally,  nor  gives 
it  any  detailed  explanation.  Explanation,  indeed,  there  is  in 
plenty,  but  it  is  rather  to  be  read  between  the  lines  than  in 
them.  It  amounts  to  this,  that  the  "uses"  possess  exchange 
value  because  they  are  economical  goods — a  piece  of  informa- 
tion which  is  concise  indeed,  but  may  be  accepted  as  satis- 
factory without  further  commentary.1 

His  explanation  of  interest  then  proceeds  as  follows. 

In  almost  all  productions  uses  of  capital,  possessing  ex- 
change value,  form  an  indispensable  portion  of  the  expenses  of 
production.  These  expenses  are  made  up  of  three  parts : — 

1.  Of  the  outlay  of  the  undertaker — that  is,  the  expendi- 
ture of  wealth  previously  existing ;  as,  for  instance,  principal, 
secondary,  and  auxiliary  materials,  his  own  labour  and  that  of 
others,  wear  and  tear  of  workshops,  tools,  etc. 

2.  Of  the  undertaker's  active  intelligence  and  care  in  the 
initiation  and  carrying  on  of  the  undertaking,  etc. 

3.  Of  the  uses  of  fixed  and  floating  capital  necessary  for 
the  production  all  the  time  of  their  employment  up  till  the 
sale  of  the  product.2 

of  a  durable  use  capital  ;  but  later  on  lie  is  fond  of  representing  capital  as 
something  different  from  the  goods — as  it  were  something  hovering  over  them. 
Thus,  c.ij.  when  he  says  on  p.  605:  "Above  all  we  must  distinguish  the  object 
in  which  a  capital  exhibits  itself  from  the  capital  itself.  Capital  is  the  basis  of 
a  durable  use  which  has  definite  exchange  value  ;  it  continues  to  exist 
undiminished  so  long  as  the  use  retains  this  value,  and  here  it  is  all  the  same 
whether  the  goods  which  form  the  capital  are  useful  simply  as  capital  or  in 
other  ways — that  is,  generally  speaking,  it  is  all  the  same  in  what  form  the 
capital  exhibits  itself."  If  the  question  be  put,  What  then  is  capital,  if  it  is  not 
tlie  substance  of  the  goods  in  which  it  "exhibits"  itself?  it  might  be  difficult 
enough  to  give  a  straightforward  answer,  and  one  that  would  not  be  simply  play- 
ing with  words. 

1  Hermann  evidently  considers  the  exchange  value  of  uses  too  self-evident  to 
need  any  formal  explanation  from  him.  Even  the  extremely  scanty  explanation 
mentioned  above  is  usually  given  only  indirectly,  although  at  the  same  time 
quite  plainly  ;  thus  when  on  p.  507  he  says :  "  For  the  use  of  land  the  corn 
producer  can  obtain  no  compensation  in  price,  so  long  as  it  is  offered  to  any  one 
in  any  quantity  as  a  free  gift." 

•  Pp.  312,  etc.,  412,  etc. 


CHAP,  ii  HERMANN  197 

Now  since,  economically,  the  price  of  the  product  must 
cover  the  total  costs  of  production,  that  price  must  be  high 
enough  to  cover  "  not  only  the  outlays,  but  also  the  sacrifice 
that  the  undertaker  makes  in  the  uses  of  capital,  as  also  in 
his  intelligence  and  care ; "  or,  as  it  is  usually  expressed,  over 
and  above  the  compensation  for  outlays,  the  price  must  yield 
a  profit  (profit  of  capital  and  profit  of  undertaking).  And 
more  exactly  explaining  his  idea,  Hermann  adds ; — this  profit 
"  is  by  no  means  merely  an  advantage  that  comes  by  accident  in 
the  struggle  that  determines  price."  Rather  we  should  say  that 
profit  is  as  much  a  compensation  for  goods  possessing  exchange 
value  that  are  really  sacrificed  in  the  product  as  the  outlays 
are.  The  only  difference  is  that  the  undertaker  makes  these 
outlays  in  order  to  procure  and  hold  together  certain  productive 
elements  already  existing,  while  the  uses  of  the  capital 
employed  and  his  own  superintendence  of  the  business  are 
new  elements  in  the  work,  provided  by  himself  during  the 
production.  He  makes  use  of  the  outlays  in  order  to  obtain 
the  highest  possible  remuneration  for  these  new  elements  that 
he  adds.  "  This  remuneration  is  profit "  (p.  3 1 4). 

To  make  this  explanation  of  profit  complete,  one  thing  is 
still  wanting ;  it  should  be  made  clear  how  it  is  that,  in  pro- 
duction, there  must  be  sacrifice  of  the  uses  of  capital,  besides 
that  of  the  outlays  of  capital.  This  Hermann  supplies  in 
another  place,  where  at  the  same  time  he  points  out,  with 
great  circumstantiality,  that  all  products  may  ultimately 
be  traced  to  exertions  of  labour  and  uses  of  capital.  In  doing 
so  he  makes  some  interesting  statements  about  the  character 
of  the  "  use  of  goods,"  as  he  conceives  of  it,  and  it  may  be  well 
to  give  this  passage  also  in  full. 

He  is  making  an  analysis  of  the  sacrifices  that  are  required 
for  the  procuring  of  salt  fish.  He  enumerates  labour  of  catch- 
ing, use  and  wear  and  tear  of  tools  and  boats,  labour  of  pro- 
curing salt ;  and  again  the  use  of  all  kinds  of  tools,  casks,  and 
so  on.  Then  he  breaks  up  the  boat  into  wood,  iron,  cordage, 
labour,  and  use  of  tools ;  the  wood  again,  into  use  of  the  forest 
and  labour ;  the  iron,  into  use  of  the  mine,  and  so  on.  "  But 
this  succession  of  labours  and  uses  does  not  exhaust  the  sum 
total  of  the  sacrifices  made  in  procuring  salt  fish.  There  must 
besides  be  taken  into  calculation  the  period  of  time  during 


198  HISTORY  OF  THE  USE  THEORY  BOOK  in 

which  each  element  of  exchange  value  is  embodied  in  the 
product.  For  from  that  moment  when  a  labour  or  a  use  is 
employed  in  the  making  of  a  product,  the  disposal  of  it  in  any 
other  way  is  made  impossible.  Instead  of  being  made  use  of 
in  itself,  it  is  simply  made  to  co-operate  in  the  making  and 
delivery  of  the  product  to  the  consumers.  To  get  a  proper 
idea  of  this,  it  is  to  be  remembered  that  labours  and  uses,  so 
soon  as  they  are  employed  in  the  making  of  a  product,  enter 
into  floating  capital  quantitatively,  as  a  constituent  element, 
with  the  exchange  value  that  they  possessed  at  the  time  of 
their  employment.  With  this  value  they  become  floating 
capital.  But  it  is  just  this  amount  of  value  that  a  man  ab- 
stains from  using  in  any  other  way  till  the  product  is  paid 
for  by  the  buyer.  As  with  the  getting,  working  up,  storing, 
and  conveying,  the  floating  capital  grows  through  ever  new 
labours  and  uses  expended  on  it,  it  is  itself  wealth,  the  use  of 
which  is  handed  over  to  the  consumers  with  every  new  accession 
of  value  up  to  the  delivering  over  of  the  product  to  the 
buyer.  And  what  must  be  paid  for  by  the  buyer  is  not  simply 
the  renunciation  of  that  use  which  the  undertaker  might  have 
made  of  the  wealth  for  his  own  gratification.  No ;  it  is 
actually  a  new  and  peculiar  use  which  is  handed  over  to  him 
along  with  the  wealth  itself;  the  putting  together  and  keeping 
together,  the  storing  and  keeping  ready  for  use,  of  all  the 
technical  elements  of  the  production,  from  the  acquiring  of  its 
first  basis  in  natural  goods,  on  through  all  technical  changes 
and  commercial  processes,  till  the  product  is  handed  over 
in  the  place,  at  the  time  and  in  the  quantity  desired.  This 
holding  together  of  the  technical  elements  of  the  product  is  the 
service,  the  objective  use  of  floating  capital."  ] 

If  we  compare  the  form  which  Hermann  has  given  to  the 
Use  theory  with  the  doctrine  of  Say,  we  find  them  alike  in 
their  rough  outlines.  Both  recognise  the  existence  of  indepen- 
dent work  done  by  capital.  In  the  fact  that  capital  is  made 
use  of  in  production,  both  see  a  sacrifice  independent  of  and 
separate  from  the  expenditure  of  the  substance  of  capital. 
And  both  explain  interest  as  the  necessary  compensation  for 
this  independent  sacrifice.  Still,  Hermann's  doctrine  shows 

1  P.  286,  etc. 


CHAP,  ii  HERMANN  199 

a  substantial  advance  on  Say's.  Say  had,  in  fact,  given  the 
mere  outlines  of  a  theory,  inside  which  the  most  important 
features  were  left  blank.  His  services  productifs  are  nothing 
but  an  ambiguous  name,  and  the  very  important  consideration 
of  how  the  sacrifice  of  these  services  constitutes  an  inde- 
pendent sacrifice  in  production — independent,  that  is,  of  the 
substance  of  capital  sacrificed — is  very  much  left  to  the  reader's 
fancy.  In  trying,  with  true  German  thoroughness,  to  work 
out  and  make  clear  these  two  cardinal  points,  Hermann  has 
definitely  filled  in  the  outlines  he  took  from  Say,  and  in  doing 
so  has  given  to  the  whole  the  rank  of  a  solid  theory. 

A  negative  merit  in  Hermann,  not  to  be  under  estimated, 
is  that  he  severely  abstains  from  the  secondary  explanations 
(explaining  interest  by  productivity)  that  are  so  offensive  in 
Say.  The  expression  "  productivity  "  is  perhaps  as  often  in  his 
mouth,  but  he  uses  it  in  a  sense  that,  if  not  happy,  is  at  least 
not  misleading.1 

Hermann  of  course  has  not  managed  to  keep  his  formula- 
tion of  the  Use  theory  free  from  all  inconsistencies.  In 
particular  it  remains  doubtful,  in  his  case  also,  what  is  the 
nature  of  the  connection  between  the  exchange  value  of  the 
uses  of  capital  and  the  price  of  the  products  of  capital.  Is 
the  price  of  products  high  because  the  exchange  value  of  uses 
is  high  ?  Or,  on  the  contrary,  is  the  exchange  value  of  the 
uses  high  because  the  price  of  products  is  high  ?  This 
point,  over  which  Say  falls  into  the  wildest  contradictions,2 
Hermann  has  not  made  entirely  clear.  In  the  passage 
given  above,  and  in  many  others,  he  obviously  inclines  to  the 
former  view,  and  so  represents  the  price  of  products  as  affected 
by  the  value  of  the  uses  of  capital.3  But  at  the  same  time 
there  are  many  expressions  which  assume  just  the  opposite. 
Thus  (p.  296)  he  remarks  that  the  determining  of  the  price  of 
products  "  is  itself  the  first  to  react  on  the  price  of  the  labours 
and  uses."  And  similarly  on  another  occasion  (p.  559)  he 
ascribes  a  determining  influence  on  the  price  of  the  incom- 
plete products,  not  to  the  constituent  costs  which  have  gone  to 
create  the  incomplete  product,  but  to  the  finished  products 

1  See  below,  p.  204.  3  See  above,  p.  125. 

3  See  also  p.  560  :  "  The  uses  of  capital  are  therefore  a  ground  of  the  deter- 
mination of  prices. " 


200  HISTORY  OF  THE  USE  THEORY  BOOK  in 

which  are  their  final  result.     It  was  reserved  for  Menger  to 
make  this  difficult  question  entirely  clear. 

Thus  far  we  have  looked  only  at  Hermann's  doctrine  of 
the  origin  of  interest.  But  we  cannot  pass  over  the  quite 
peculiar  views  that  he  propounds  on  the  causes  of  the  different 
rates  of  interest. 

Hermann  starts  from  the  proposition  already  referred  to, 
that  "  the  total  quantity  of  products,"  resolved  into  its  simple 
constituents,  is  "  a  sum  of  labours  and  uses  of  capital."  If 
we  allow  this,  it  becomes  clear,  in  the  next  place,  that  all  acts 
of  exchange  must  consist  in  the  exchange  of  labours  and  uses 
of  capital  possessed  by  one  for  labours  and  uses  possessed 
by  another,  these  labours  and  uses  being  either  direct  or  em- 
bodied in  products.  Whatever,  then,  a  man  receives  for  his 
own  labour  in  other  people's  labours  and  uses  is  the  exchange 
value  of  labour,  or  wage ;  and  "  whatever  a  man  receives  in  the 
labours  and  uses  of  other  men,  when  he  offers  his  own  uses  for 
sale,  forms  the  exchange  value  of  these  uses,  or  the  profit  of 
capital."  The  wages  of  labour  and  the  profit  of  capital 
must  therefore,  between  them,  exhaust  the  total  quantity  of  all 
products  coming  to  market.1 

On  what,  then,  depends  the  rate  of  profit;  or,  which  is 
the  same  thing,  the  rate  of  the  exchange  value  of  the  uses  of 
capital  ?  First,  naturally,  on  the  amount  of  other  people's 
labours  and  uses  obtainable  for  these.  But  this  itself 
depends  again,  for  the  most  part,  on  the  proportion  in  which 
the  two  participants  in  the  total  product,  labour  and  uses  of 
capital,  are  supplied  and  demanded  as  against  each  other. 
And  of  course  every  increase  in  the  supply  of  labour  tends 
to  diminish  wages  and  to  raise  profit ;  and  every  increase  in 
the  supply  of  uses,  to  raise  wages  and  lower  profit.  But, 
again,  the  supply  of  either  of  these  two  factors  may  be 
increased  by  two  circumstances ;  either  by  increase  of  the 
available  amount  or  by  increase  of  its  productiveness.  These 
circumstances  act  in  the  following  way. 

"  If  the  amount  of  capital  increases,  more  uses  are  offered 
for  sale,  more  equivalent  values  are  sought  for  them.  Now 
these  equivalent  values  can  only  be  labours  or  uses.  So  far 
1  Under  capital  Hermann  includes  land. 


CHAP,  ii  HERMANN  201 

as,  in  exchange  for  the  increased  uses,  other  uses  of  capital  are 
demanded,  a  greater  amount  of  equivalent  values  is  actually 
disposable.  Since  then  supply  and  demand  are  equally 
increased,  the  exchange  value  of  the  uses  cannot  alter.  But 
if,  as  is  here  assumed,  the  quantity  of  labour,  on  the  whole,  is 
not  increased,  the  owners  of  capital  find,  for  the  increased 
amount  of  uses  which  they  seek  to  exchange  against  labour, 
only  the  amount  of  labour  they  got  before — that  is,  they  get 
an  unsatisfactory  equivalent  value.  The  exchange  value  of 
uses  will  therefore  sink  in  comparison  with  labour ;  with  the 
same  exertions,  the  labourer  will  buy  more  uses.  In  the 
exchange  of  use  against  use  the  capitalists  now  receive  the 
same  equivalent  value  as  formerly,  but  in  the  exchange  of  uses 
against  labour  they  receive  less.  The  amount  of  profit,  there- 
fore, in  proportion  to  the  total  capital — that  is,  the  rate  of  profit 
— must  fall.  The  total  quantity  of  goods  produced  is  indeed 
increased,  but  the  increase  has  been  divided  among  capitalists 
and  labourers. 

"  If  the  'productiveness  of  capital  increases,  or  if  in  the  same 
time  it  furnishes  more  means  of  satisfying  needs,  the  owners 
of  capital  offer  for  sale  more  useful  goods  than  before,  and  ask 
therefore  for  more  equivalent  values.  They  obtain  these  so  far 
as  each  one  seeks  other  uses  in  exchange  for  his  own  increased 
use.  Here  the  supply  has  risen  with  the  demand.  The 
exchange  value  must  therefore  remain  unaltered — that  is,  the 
uses  of  equal  capitals  for  equal  times  exchange  with  each 
other — although  the  character  of  these  uses  as  regards  usefulness 
is  higher  than  before.  But  under  the  assumption  that  labour  is 
not  increased,  all  the  uses  with  which  the  capitalist  wishes  to 
buy  labour  do  not  obtain  their  former  equivalent  value ;  this 
must  raise  the  competitive  demand  for  labour,  and  must  lower 
the  exchange  value  of  uses  as  against  labour.  The  labourers 
now  receive  more  uses  for  the  same  amount  of  labour  as  before, 
and  find  themselves  therefore  better  off;  the  owners  of  capital 
do  not  themselves  enjoy  the  whole  fruit  of  the  increased  pro- 
ductiveness of  capital,  but  are  compelled  to  share  it  with  the 
workers.  But  the  lowering  of  the  exchange  value  of  tire  uses 
does  not  cause  the  owners  of  capital  any  loss,  since  the  reduced 
value  can  obtain  more  means  of  enjoyment  than  the  higher 
value  formerly  obtained." 


202  HISTORY  OF  THE  USE  THEORY  BOOK  in 

On  analogous  grounds,  which  we  need  not  further  pursue, 
Hermann  shows  that  the  rate  of  profit  rises  if  the  amount  or 
the  productiveness  of  labour  decreases. 

The  most  striking  feature  in  this  theory  certainly  is,  that 
Hermann  finds  a  reason  for  the  decline  of  interest  in  the 
increase  of  the  productive  power  of  capital.  In  this  he  goes 
in  direct  opposition,  on  the  one  hand,  to  Eicardo  and  his 
school,  who  found  the  principal  cause  of  the  declining  rate  of 
interest  in  the  decrease  of  the  productiveness  of  capitals  when 
driven  to  worse  lands ;  but,  on  the  other  hand,  to  the  Produc- 
tivity theorists  also,  who,  from  the  nature  of  their  theory,  were 
bound  to  accept  a  direct  proportion  between  the  degree  of 
productivity  and  the  rate  of  interest.1 

Whether  the  substance  of  Hermann's  Use  theory  be  tenable 
or  not,  I  leave  in  the  meantime  an  open  question.  But 
that  Hermann's  application  of  it  to  explain  the  height  of  the 
interest  rate  is  not  correct  is,  I  think,  demonstrable  even  at 
the  present  stage  of  our  inquiries. 

It  appears  to  me  that,  in  this  part  of  his  doctrine,  Her- 
mann has  made  too  little  distinction  between  two  things 
that  should  have  been  kept  very  clearly  distinct, — the  ratio 
between  total  profit  and  total  wage,  and  the  ratio  between 
amount  of  profit  and  amount  of  capital,  or  the  rate  of  interest. 
What  Hermann  has  put  forward  admirably  explains  and 
proves  a  lowering  or  raising  of  total  profit  in  proportion  to 
wages  of  labour ;  but  that  explains  and  proves  nothing  as 
regards  the  height  of  profit,  or  the  rate  of  interest. 

The  source  of  the  oversight  lies  in  this :  the  abstraction — 
in  other  respects  quite  justifiable — in  virtue  of  which  he  sees 
nothing  in  products  but"  the  labours  and  uses  out  of.  which  they 
come,  Hermann  has  extended  to  the  sphere  of  exchange  value, 
where  it  should  never  have  been  applied.  Accustomed  to  look 
on  uses  and  labours  as  representatives  of  all  goods,  Hermann 
thought  he  might  look  at  these  representatives  even  where  the 
matter  at  issue  concerned  the  high  or  low  exchange  value  of 
any  one  amount.  He  calculates  thus  :  uses  and  labours  are  the 
representatives  of  all  goods.  Consequently  if  the  use  buys  as 
many  uses  as  before,  but  at  the  same  time  buys  less  labours, 

1  E.g.  Roscher,  §  183.     Roesler,  who  accepts  Hermann's  results,  although  he 
ascribes  them  to  somewhat  different  causes,  is  the  only  exception. 


CHAP.  II  HERMANN  203 

its  exchange  value  is  evidently  smaller.  -  Now  this  is  not  true. 
The  exchange  value  of  goods  (in  the  sense  of  "power  in 
exchange,"  which  is  the  sense  that  Hermann  always  gives  to  the 
word)  is  measured,  not  only  in  the  quantities  of  one  or  two 
definite  kinds  of  goods  that  can  be  got  in  exchange  for  it,  but 
in  the  average  of  all  goods ; .  among  which,  in  this  case,  are  to 
be  counted  all  products,  each  product  having  equal  rights  with 
the  goods  called  "  labour  "  and  with  the  goods  called  "  use  of 
capital."  Thus  exchange  value  is  understood  in  practical  life 
and  in  economics,  and  thus  also  it  is  understood  by  Hermann 
himself.  On  p.  432  he  expressly  declares:  "Among  such 
differences  of  the  goods  in  which  price  is  paid,  the  establishment 
of  an  average  price,  such  as  we  desired  for  the  fixing  of  ex- 
change value,  is  not  to  be  thought  of,  but  the  conception  of 
exchange  value  is  not  impossible  on  that  account.  It  is 
arrived  at  by  considering  all  the  average  prices  which,  in  the 
same  market,  are  paid  for  one  good  in  all  goods ;  it  is  a  series 
of  comparisons  of  the  same  good  against  many  other  goods. 
We  shall  call  the  exchange  value  of  a  good,  as  thus  determined, 
the  '  real  value '  of  the  good,  to  distinguish  it  from  the  average 
amount  of  the  money  prices,  or  the  money  value." 

Now  it  is  not  difficult  to  show  that  the  power  in  exchange 
of  the  use  of  capital  as  against  products  moves  in  quite  a  differ- 
ent direction  from  its  power  in  exchange  against  other  uses  and 
labours.  For  instance,  if  the  productiveness  of  all  uses  and 
labours  rises  to  exactly  double,  the  power  in  exchange  between 
uses  and  labours,  as  regards  each  other,  is  not  disturbed ;  on 
the  other  hand,  the  power  in  exchange  of  both  as  against  the 
products  which  result  from  them  is  very  seriously  disturbed : 
it  is,  that  is  to  say,  doubled. 

As  regards  the  rate  of  interest,  the  question  obviously  is, 
What  is  the  proportion  between  the  exchange  power  of  the  uses 
of  capital  and  the  exchange  power  of  a  quite  definite  class  of 
product,  viz.  that  real  capital  which  furnishes  the  "use"? 
If  the  power  in  exchange  of  the  use  of  a  machine  be  twenty 
times  less  than  the  exchange  power  of  the  product  machine, 
the  use  of  the  machine  "  buys  "  £10,  while  the  machine  itself 
obtains  £200  as  its  equivalent  value,  and  the  proportion  corre- 
sponds to  a  5  per  cent  rate  of  interest.  If  the  exchange  value 
of  the  use  of  a  machine  again  is  only  ten  times  less  than  that 


204  HISTORY  OF  THE  USE  THEORY  BOOK  in 

of  the  product  machine,  the  one  buys  £20  while  the  other 
buys  £200,  and  the  proportion  corresponds  to  a  10  per  cent 
rate  of  interest. 

Now  there  is  no  obvious  ground  for  assuming  that  the 
exchange  value  of  real  capital  is  determined  in  a  different 
way  from  the  exchange  value  of  other  products,  and,  as  we 
have  seen,  the  exchange  value  of  products  as  against  the 
exchange  value  of  uses,  generally  speaking,  can  be  altered  in 
another  proportion  than  the  exchange  value  between  uses 
and  labour  as  regards  each  other  is  altered.  It  follows  then 
that  the  ratio  between  the  power  in  exchange  of  the  uses  of 
capital  and  the  power  in  exchange  of  real  capital  (in  other 
words,  the  rate  of  interest)  may  take  a  different  course  from 
the  proportion  of  exchange  value  between  uses  and  labour. 
Hermann's  rule  therefore  is  not  sufficiently  proved.1 

In  conclusion,  let  me  say  just  a  word  on  the  position 
that  Hermann  assumes  towards  the  "  productivity  of  capital." 
I  have  already  said  that  he  often  uses  the  expression,  but 
never  with  the  meaning  given  to  it  by  the  Productivitv  theorv. 

O    O  t/  i-  i/ 

He  is  so  far  from  saying  that  interest  is  produced  directly  from 
capital,  that  he  maintains  high  productive  power  to  be  a  cause 
of  the  lowering  of  interest.  He  expressly  guards  himself  also 
(p.  542)  against  being  supposed  to  say  that  profit  is  a  com- 
pensation for  "  dead  use."  He  asserts  that  capital,  to  give  its 
due  results,  demands  "  plan,  care,  superintendence,  intellectual 
activity  generally."  For  the  rest,  he  has  not  himself  attached 
any  particularly  clear  conception  to  the  expression  "produc- 
tivity." He  defines  it  in  the  words :  "  The  totality  of  the 
ways  in  which  capital  is  employed,  and  the  relation  of  the 
product  to  the  expenditure,  constitute  what  is  called  the 
productivity  of  capital."  2  Does  he  mean  by  this  the  relation 
of  the  value  of  the  product  to  the  value  of  the  expenditure  ? 
If  so,  then  high  productivity  would  only  accompany  high  interest, 
whereas  high  productivity  certainly  occasions  low  interest. 
Or  does  he  mean  the  relation  of  the  quantity  of  the  product 
to  the  quantity  of  the  expenditure  ?  But  in  economic  life 

1  A   note   which    occurs   here   in  the   German   edition  is   omitted   by   the 
author's  instructions. — W.  S. 

-  P.  541  ;  p.  212  of  first  edition. 


CHAP,  ii        BERNHARDI,   MANGOLDT,  SCHAFFLE  205 

quantity,  speaking  generally,  is  of  no  importance.  Or  does  he 
mean  the  relation  of  the  quantity  of  the  product  to  the  value 
of  the  expenditure  ?  But  quantity  on  one  side  and  value  on 
the  other  are  incommensurable.  The  fact  of  the  matter,  it 
appears  to  me,  is  that  Hermann's  definition  will  not  stand 
strict  interpretation.  On  the  whole,  it  is  just  possible  that  he 
may  have  had  in  his  mind  a  kind  of  physical  productivity. 

In  Germany  many  writers  of  note  have  accepted  Hermann's 
Use  theory,  and  given  it  their  strong  support. 

One  very  clear-headed  follower  of  his  is  Bernhardi.1 
Without  developing  the  theory  any  further, — for  he  contents 
himself  with  quoting  Hermann's  doctrine  incidentally,  and 
expressing  agreement  with  it,2 — he  shows  his  originality  and 
profound  thinking  by  a  number  of  fine  criticisms,  directed 
principally  against  the  English  school.3  He  has,  too,  a  word  of 
censure  for  the  school  that  stands  at  the  opposite  extreme,  the 
blind  Productivity  theorists,  with  their  "  strange  contradiction  " 
of  ascribing  to  the  dead  tool  an  independent  living  activity  (p. 
307). 

Mangoldt  again  takes  the  same  ground  as  Hermann,  and 
diverges  from  him  only  in  unimportant  particulars.  Thus  he 
gives  even  less  importance  to  the  "  productivity  of  capital "  in 
the  formation  of  interest.4  He  would  go  so  far  as  abolish  that 
expression  as  incorrect,  although  he  does  not  scruple  to  use  it 
himself  "  for  the  sake  of  brevity."5  Thus,  too,  where  Hermann 
puts  the  height  of  interest  in  inverse  ratio  to  the  productivity 
of  capital,  Mangoldt  puts  it  in  direct  ratio ;  indeed,  he  accepts 
Thlinen's  formula,  and  puts  it  in  direct  ratio  to  the  "last 
applied  dose  of  capital." 

Similarly  Mithoff,  in  his  account  of  the  economical  dis- 
tribution of  wealth,  lately  published  in  Schonberg's  Handhuch? 
follows  Hermann  in  all  essential  respects. 

Schaffle  takes  a  peculiar  position  on  the  Use  theory. 
One  of  the  most  prominent  promoters  of  that  critical  movement 

1  Versuch  einer  Kritik  der  Griinde  die  fur  grosses  und  kleines  Grundeigenthum 
angefiihrt  werden,  St.  Petersburg,  1849. 

*  E.g.  p.  236,  etc.  3  P.  306,  etc. 

*  Volkswirtschaftslehre,    Stuttgart,    1868  ;   particularly    pp.    121,    137,    333. 
445,  etc.  5  Pp.  122,  432. 

*  Schonberg's  Handbuch,  i.  pp.  437,  484,  etc. 


206  HISTORY  OF  THE  USE  THEORY  BOOK  in 

which  came  into  existence  with  the  rise  of  scientific  Socialism, 
Schaffle  was  one  of  the  first  to  pass -through  the  fermentation 
of  opinion  which  might  have  been  expected  when  two  such 
different  conceptions  encountered  each  other.  This  fermenta- 
tion has  left  very  characteristic  traces  on  his  utterances  on  the 
subject  of  interest.  I  shall  show  later  on  that  in  Schaffle's 
writings  may  be  found  no  less  than  three  distinctly  different 
methods  of  explaining  interest.  One  of  these  belongs  to  the 
older,  two  to  the  later  "  critical "  conception.  The  first  of  them 
falls  within  the  group  of  the  Use  theories. 

In  his  first  great  work,  the  Gesdlschaftliehe  System  der 
menschlichen  Wirtschaft,1  Schaffle  states  his  entire  theory  of 
interest  according  to  the  terminology  of  the  Use  theory.  Profit 
of  capital  is  with  him  a  profit  from  the  "use  (Nutzung)  of 
capital " :  loan  interest  is  a  price  paid  for  that  use,  and  its 
rate  depends  on  the  supply  and  demand  of  the  uses  of  loan 
capital :  the  uses  are  an  independent  element  in  cost,  and  so 
on.  But  there  are  unmistakable  signs  that  he  is  not  far  from 
giving  up  the  theory  he  'professedly  holds.  He  repeatedly 
gives  the  word  "  use  "  a  signification  very  far  from  that  attached  to 
it  by  Hermann.  He  explains  the  use  of  capital  as  a  "  working" 
( Wirkeri)  of  an  economical  subject  by  means  of  wealth ;  as  a 
"  using "  (Benutzung]  of  wealth  for  fruitful  production ;  as  a 
"  devoting,"  an  "  employment "  of  wealth,  as  a  "  service  "  of  the 
undertaker — expressions  which  would  lead  us  to  see  in  the  Use, 
not  so  much  a  material  element  in  production  issuing  from 
capital,  -as  a  personal  element  proceeding  from  the  undertaker.2 
This  impression  is,  moreover,  confirmed  by  the  fact  that  Schaffle 
repeatedly  speaks  of  profit  as  premium  for  an  economical 
vocation.  Further,  he  argues  positively  against  the  view  that 
profit  is  a  product  of  the  use  of  capital  contributed  to  the 
process  of  production  (ii.  p.  389).  He  charges  Hermann 
with  having  coloured  his  the'ory  too  much  by  the  idea  of  an 
independent  productivity  in  capital  (ii.  p.  459).  But,  on  the 
other  hand,  he  often  uses  the  word  "  use  "  in  such  a  way  that 
it  can  only  be  interpreted  in  the  objective,  and  therefore  in 
Hermann's  sense ;  as,  e.g.  when  he  speaks  of  the  supply  and 
demand  of  the  uses  of  loan  capital  On  one  occasion  he 

1  Third  edition,  Tubingen,  1873. 

2  Ges.  System,  third  edition,  i.  p.  266  ;  ii.  p.  458,  etc. 


CHAP,  ii  SCH'AFFLE,  KNIES  207 

explicitly  admits  that  in  the  use,  besides  the  personal  element, 
there  may  be  contained  a  material  element,  which  he  calls  the 
Gebrauch  of  capital  (ii.  p.  458).  And  notwithstanding  his 
condemnation  of  Hermann,  he  himself  does  not  scruple  now 
and  then  to  ascribe  "  fruitfulness  "  to  the  use  of  capital.  Thus 
he  neither  entirely  accepts  the  ground  of  the  Use  theory  nor 
entirely  rejects  it. 

Even  in  his  later  systematic  work,  the  Bau  und  Leben  des 
sozialen  Korpers}  Schaffle's  views  have  not  developed  into 
a  completely  clear  and  consistent  theory.  While  he  has 
got  beyond  the  old  Use  theory  in  one  respect,  in  another  he 
has  come  nearer  to  it.  In  the  Bau  und  Leben  he  always  looks 
upon  interest  as  a  "  return  to  the  use  (Nutzwng)  of  capital," 
which  use  at  all  times  maintains  an  economical  value.  In 
this  he  gives  up  the  subjective  meaning  of  use,  and  now  treats 
it  unambiguously  as  a  purely  objective  element  contributed 
by  goods.  He  speaks  of  the  uses  as  "  functions  of  goods,"  as 
"  equivalents  of  useful  materials  in  living  labour,"  as  "  living 
energies  of  impersonal  social  substance."  Even  in  the  socialist 
state  this  objective  use  would  retain  its  independent  value, 
and  thereby  preserve  its  capacity  to  yield  interest.  The 
phenomenon  of  interest  can  only  disappear  if,  in  the  socialist 
state,  the  community,  as  sole  owner  of  capital,  should  contribute 
the  valuable  use  of  capital  gratuitously ;  in  which  case  the 
return  from  it  would  go  to  the  advantage  of  the  entire  social 
body  (iii.  p.  491).  On  the  other  hand,  Schaffle  rather  diverges 
from  the  old  Use  theory  in  not  acknowledging  the  use  of 
capital  as  an  ultimate  and  original  element  in  production,  and 
in  tracing  all  costs  of  production  to  labour  alone  (iii.  pp.  273, 
274).  But  in  doing  so  he  chances  on  another  line  of 
explanation,  which  I  shall  have  to  discuss  at  length  in  another 
connection. 

While  these  followers  of  Hermann  have  not  developed 
his  theory  so  much  as  broadened  it,  Knies  may  fairly  claim  to 
have  improved  it  in  some  essential  respects.  He  has  made 
no  change  in  its  fundamental  ideas,  but  he  has  given  these 
fundamental  ideas  a  much  clearer  and  more  unambiguous 
expression  than  Hermann  himself  gave  them.  That  Hermann's 
theory  was  very  much  in  want  of  such  improvement  was 
1  Second  edition,  Tubingen,  1881. 


HISTORY  OF  THE  USE  THEORY  BOOK  in 

shown  by  the  many  misunderstandings  of  it.  I  have  already 
remarked  that  Schaffle  considered  Hermann  a  Productivity 
theorist.  Still  more  remarkable  is  it  that  Knies  himself 
thought  he  saw  in  Hermann,  not  a  forerunner,  but  an  opponent.1 

Knies  was  not  always  a  Use  theorist.  In  his  JErorterungen 
uber  den  Kredit?  published  in  1859,  he  looked  on  credit 
transactions  as  barter  transactions,  or,  according  to  circumstances, 
buying  transactions,  in  which  what  one  party  gives  is  given  in 
the  present,  and  what  the  other  gives  as  equivalent  is  given 
in  the  future  (p.  568).  One  of  the  ulterior  results  of  this 
conception  was  that  interest  must  not  be  looked  on  as  an 
equivalent  of  a  use  transferred  in  the  loan,  but — almost  as 
Galiani  had  put  it  long  before 3 — as  a  part-equivalent  of  the 
parent  loan  itself.  But  since  then  Knies  has  expressly  with- 
drawn this  conception,  -considering  that  there  is  no  call  for  such 
an  innovation,  and  that,  on  the  contrary,  there  is  much  to 
deter  one  from  accepting  it.4  Later  still,  in  a  fully  argued- 
out  analysis,  he  has  expressed  himself  quite  directly  to  the 
effect,  that  any  consideration  of  the  different  values  which 
present  and  future  goods  of  the  same  class  may  possess  on 
account  of  the  greater  urgency  of  immediate  need  is,  though 
"  not  quite  unfruitful,"  still  distinctly  insufficient  to  explain  the 
principal  point  in  the  phenomenon  of  interest5 

In  place  of  this,  in  his  comprehensive  work  Odd  und  Kredit, 
Knies  has  laid  down  an  unusually  clear  and  thoroughly 
reasoned  Use  theory.6 

Although  the  purpose  of  this  work  only  called  for  investiga- 
tion into  Contract  interest,  Knies  yet  treats  the  subject  from 
such  a  general  standpoint  that  his  views  on  Natural  interest 
may  easily  be  supplied  from  what  he  says  on  the  other. 

In  fundamental  ideas  he  agrees  with  Hermann.  Like  him 
he  conceives  of  the  use  (Nutzung)  of  a  good  as  "that  use 

1  Knies,  Geld  und  Kredit,  ii.  part  ii.  p.  35.  See  also  Nasse's  Recension  in 
vol.  xxxv.  of  the  Jahrbiicher  fur  National- Oekonomie  und  Statistik,  1880,  p.  94. 

a  Zeitschrift  fur  die  gesammte  Staatswissenschaft,  vol.  xv.  p.  559. 

8  See  above,  p.  49. 

4  Der  Kredit,  part  i.  p.  11. 

8  Ibid.  ii.  p.  38.  I  may  perhaps  express  the  conjecture  that  the  re- 
spected author  was  led  to  the  above  polemic  by  the  contents  of  a  work  which  I 
had  written  in  his  economical  Seminar  a  few  years  before,  and  in  which  I  had 
laid  down  the  views  contested. 

6  Das  Geld,  Berlin,  1873.     Der  Kredit,  part  i.  1876  ;  part  ii.  1879. 


CHAP,  ii  KNIES,  MENGER  209 

(Gebravdi)  which  lasts  through  a  period  of  time,  and  is  limitable 
by  moments  of  time  "  ;  a  use  to  be  kept  quite  distinct  from  the 
good  itself  which  is  the  "  bearer  of  the  use  "  ;  and  a  use  capable 
of  economical  independence.  To  the  question  which  most 
concerns  the  Use  theory,  whether  an  independent  use  and  its 
transfer  are  conceivable  and  practicable  in  the  case  of  perishable 
goods,  he  devotes  a  searching  inquiry,  which  ends  with  a  distinct 
answer  in  the  affirmative.1  Another  cardinal  question  of  the 
Use  theory  is,  whether  and  why  the  independent  use  of  capital 
must  possess  an  exchange  value,  and  obtain  a  compensation 
in  the  form  of  interest.  This  question,  as  we  have  seen, 
Hermann  does  not  leave  without  answer,  but  he  has  laid  so 
little  stress  on  the  answer,  and  put  it  in  such  an  insignificant 
form,  that  it  has  not  unfrequently  been  quite  overlooked.2 
In  contrast  to  this,  Knies  has  carefully  reasoned  it  out,  and 
concludes  that  "  the  emergence  and  the  economical  justification 
of  a  price  for  use,  in  the  shape  of  interest,  is  founded  on  the 
same  relation  as  that  on  which  the  price  of  material  goods  is 
founded."  The  use  is  an  instrument  for  the  satisfaction  of 
human  need  just  as  much  as  the  material  good  is ;  it  is  an 
object  that  is  "  economically  valuable  and  that  is  economically 
valued."  3  When  I  add  that  Knies  has  avoided  not  only  any 
relapse  into  the  Productivity  theory,  but  even  the  very 
appearance  of  such  a  relapse,  and  that  he  has  appended  to  his 
theory  some  very  notable  criticisms,  particularly  of  the  social- 
istic interest  theory,  I  have  said  enough  to  point  out  how 
deeply  Hermann's  theory  is  indebted  to  a  thinker  equally 
distinguished  for  his  acuteness  and  for  the  conscientiousness 
of  his  research. 

We  now  come  to  that  writer  who  has  put  the  Use  theory 
into  the  most  perfect  form  in  which  it  could  well  be  put — 
Karl  Menger,  in  his  Gh'undsatze  der  Volkswirthschaftslehre* 

The  superiority  of  Menger  to  all  his  predecessors  consists 
in  this,  that  he  builds  his  interest  theory  on  a  much  more 
complete  theory  of  value, — a  theory  which  gives  an  elaborate 
and  satisfactory  answer  to  the  very  difficult  question  of  the 

1  Das  Geld,  pp.  61,  71,  etc.     I  shall  return  to  the  details  of  this  inquiry  later 
on,  when  criticising  the  Use  theory  as  a  whole.  2  See  above,  p.  196. 

3  Kredit,  part  ii.  p.  33,  and  other  places.  4  Vienna,  1871. 

P 


210  HISTORY  OF  THE  USE  THEORY  ROOK  in 

relation  between  the  value  of  products  and  that  of  their  means 
of  production.  Does  the  value  of  a  product  depend  on  the 
value  of  its  means  of  production,  or  does  the  value  of  the 
means  of  production  depend  on  that  of  their  product  ?  As 
regards  this  question  economists  up  till  Monger's  time  had 
been  very  much  groping  in  the  dark.  It  is  true  that  a 
number  of  writers  had  occasionally  used  expressions  to  the 
effect  that  the  value  of  the  means  of  production  was  con- 
ditioned by  the  value  of  their  anticipated  product;  as,  for 
instance,  Say,  Eiedel,  Hermann,  Eoscher.1  But  these  expres- 
sions were  never  put  forward  in  the  form  of  a  general  law, 
and  still  less  in  the  form  of  an  adequate  logical  argument. 
Moreover,  as  must  have  been  noticed,  expressions  are  to  be 
found  in  these  writers  which  indicate  quite  the  opposite  view ; 
and  with  this  opposite  view  the  great  body  of  economic 
literature  fully  agrees  in  recognising  as  a  fundamental  law 
that  the  cost  of  goods  determines  their  value. 

But  so  long  as  economists  did  not  see  clearly  on  this 
preliminary  question,  their  treatment  of  the  interest  problem 
could  scarcely  be  more  than  uncertain  groping.  How 
could  any  one  possibly  explain  in  clear  outline  a  difference 
in  value  between  two  amounts — expenditure  of  capital  and 
product  of  capital — if  he  did  not  even  know  on  which  side  of 
the  relation  to  seek  for  the  cause,  and  on  which  side  for  the 
effect  ? 

To  Menger,  then,  belongs  the  great  merit  of  having  dis- 
tinctly answered  this  preliminary  question.  In  doing  so  he 
has  definitely  and  for  all  time  indicated  the  point  at  which, 
and  the  direction  in  which,  the  interest  problem  is  to  be  solved. 
His  answer  is  this.  The  value  of  the  means  of  pro- 
duction ("goods  of  higher  rank,"  in  his  terminology)  is 
determined  always  and  without  exception  by  the  value  of  their 
products  ("  goods  of  lower  rank ").  He  arrives  at  this 
conclusion  by  the  following  argument.2 

1  See  above,  pp.  139,  199. 

-  I  regret  that  I  must  deny  myself  the  pleasure  of  introducing  in  this  place 
more  than  the  barest  outlines  of  Monger's  value  theory.  Holding  as  I  do  that 
his  theory  is  among  the  most  valuable  and  most  certain  acquisitions  of  modern 
economics,  I  feel  that  it  cnnnot  be  at  all  adequately  appreciated  from  any  such 
sketch.  In  my  next  volume  I  shall  have  the  opportunity  of  going  more  thoroughly 
into  the  subject.  Meanwhile,  for  more  exact  information  on  the  propositions 


CHAP,  ii  MENGER  211 

Value  is  the  importance  "  which  concrete  goods,  or  quantities 
of  goods,  receive  for  us  through  the  fact  that  we  are  conscious 
of  being  dependent,  for  the  satisfaction  of  our  wants,  on  having 
these  goods  at  our  disposal."  The  amount  of  value  that  goods 
possess  always  depends  on  the  importance  of  those  wants, 
which  depend  for  their  satisfaction  on  our  disposal  over  the 
goods  in  question.  Since  goods  of  "  higher  rank  "  (means  of 
production)  are  only  of  service  to  us  through  the  medium  of 
those  goods  of  "lower  rank"  (products)  which  result  from 
them,  it  is  clear  that  the  means  of  production  can  only  have 
an  importance  as  regards  the  satisfaction  of  our  wants  so  far  as 
their  products  possess  such  an  importance.  If  the  only  use  of 
means  of  production  were  to  consist  in  the  making  of  valueless 
goods,  these  means  of  production  could  evidently  in  no  way 
obtain  value  for  us. 

Further,  since  that  circle  of  wants  the  satisfaction  of 
which  is  conditioned  by  a  product  is  obviously  identical  with 
that  circle  of  wants  the  satisfaction  of  which  is  conditioned 
by  the  sum  of  the  means  of  production  of  the  product,  the 
degree  of  importance  which  a  product  possesses  for'  the  satis- 
faction of  our  wants,  and  that  which  the  sum  of  its  means  of 
production  possesses,  must  be  essentially  identical.  On  those 
grounds  the  anticipated  value  of  the  product  is  the  standard 
not  only  for  the  existence,  but  also  for  the  amount  of  the 
value  of  its  means  of  production.  Finally,  since  the  (subjective) 
value  of  goods  is  also  the  basis  for  their  price,  the  price,  or, 
as  some  people  call  it,  the  "  economical  value "  of  goods,  is 
regulated  by  the  same  principle. 

This  being  the  foundation,  the  interest  problem  assumes 
the  following  shape. 

A  capital  is  nothing  else  than  a  sum  of  "  complementary 
goods  "  of  higher  rank.  Now  if  this  sum  derives  its  value  from 
the  value  of  its  anticipated  product,  how  is  it  that  it  never  quite 
reaches  that  value,  but  is  always  less  by  a  definite  proportion  ? 
Or,  if  it  is  true  that  the  anticipated  value  of  the  product  is  the 
source  and  the  measure  of  the  value  of  its  means  of  production, 
how  is  it  that  real  capital  is  not  valued  as  highly  as  its  product? 

which  I  have  given  in  very  condensed  form  in  the  text,  I  must  refer  to  Menger's 
own  unusually  luminous  and  convincing  statement  in  the  Grundsdtze,  particu- 
larly p.  77  onward. 


212  HISTORY  OF  THE   USE  THEORY  BOOK  HI 

To  this  Menger  gives  the  following  acute  answer.1 

The  transformation  of  means  of  production  into  products 
(or,  shortly,  Production)  always  demands  a  certain  period  of 
time,  sometimes  long,  sometimes  short.  For  the  purposes  of 
production  it  is  necessary  that  a  person  should  not  only  have 
the  productive  goods  at  his  disposal  for  a  single  moment  inside 
that  period  of  time,  but  should  retain  them  at  his  disposal 
and  bind  them  together  in  the  process  of  production  over  the 
whole  period  of  time.  One  of  the  conditions  of  production, 
therefore,  is  this :  the  disposal  over  quantities  of  real  capital 
during  definite  periods  of  time.  .It  is  in  this  Disposal  that 
Menger  places  the  essential  nature  of  the  use  of  capital. 

The  use  of  capital,  or  the  disposal  over  capital,  thus  de- 
scribed, in  so  far  as  it  is  in  demand  and  is  not  to  be  had  in 
sufficient  quantity,  may  now  obtain  a  value,  or,  in  other  words, 
may  become  an  economical  good.  When  this  happens, — as  is 
usually  the  case, — then,  over  and  above  the  other  means  of 
production  employed  in  the  making  of  a  concrete  product  (over 
and  above,  e.g.  the  raw  materials,  auxiliary  materials,  labour,  and 
so  on),  there  enters  into  the  sum  of  value  contained  in  the 
anticipated  product,  the  disposal  over  those  goods  that  are 
required  for  the  production,  or  the  use  of  capital.  And 
since,  on  that  account,  in  this  sum  of  value  there  must 
remain  something  for  the  economical  good  we  have  called  "  use 
of  capital,"  the  other  means  of  production  cannot  account  for 
the  full  amount  of  the  value  of  the  anticipated  product.  This 
is  the  origin  of  the  difference  in  value  between  the  concrete 
capital  thrown  into  production  and  the  product ;  and  this  at 
the  same  time  is  the  origin  of  interest.2 

In  this  doctrine  of  Menger  the  Use  theory  has  at  last 
attained  to  its  full  theoretical  clearness  and  maturity.  In  it 
there  is  no  falling  back  on  old  errors ;  there  is  nothing  that 
could  even  recall  the  old  Productivity  theories  and  their  dangers  ; 
and  with  that  the  interest  problem  has  definitely  passed  from 
a  production  problem,  which  it  is  not,  to  a  value  problem, 
which  it  is.  The  value  problem  is,  at  the  same  time,  so  clearly 
and  so  sharply  put,  its  outlines  so  happily  filled  in  by  the 

1  Pp.  133-138. 

2  Mataja  in  his  Unternehmergcwinn  (Vienna,  1884)  is  in  substantial  agree- 
ment with  Menger.     This  valuable  work,  unfortunately,  reached  me  too  late  to 
allow  me  to  make  any  thorough  use  of  it. 


CHAP,  ii  MENGER  213 

exposition  he  gives  of  the  value  relation  between  product  and 
meana  of  production,  that  Menger  has  not  only  distanced  his 
predecessors  in  the  Use  theory,  but  has  laid  a  permanent  founda- 
tion on  which  all  earnest  work  at  the  problem  of  interest  must, 
for  the  future,  be  built. 

The  work  of  the  critic  as  regards  Menger,  therefore,  is 
different  from  that  as  regards  any  of  his  predecessors.  In 
considering  the  previous  doctrines  I  have  purposely  laid  on  one 
side  the  question  whether  the  fundamental  principle  of  the  Use 
theory  was  warranted  or  not.  I  have  only  examined  them  in  the 
way  of  asking  whether  they  presented  this  principle  with  more 
or  less  completeness,  with  more  or  less  internal  consistency  and 
clearness.  In  fact,  up  till  now  I  have,  to  some  extent,  tested  the 
concrete  Use  theories  by  the  ideal  Use  theory,  but  I  have  not 
tested  the  ideal  Use  theory  itself.  In  the  case  of  Menger, 
however,  it  is  only  this  latter  test  that  needs  to  be  applied. 
As  regards  his  theory  only  one  critical  question  remains  to 
be  put,  but  that  the  most  decisive  one :  Can  the  Use  theory 
give  us  a  satisfactory  explanation  of  the  interest  problem  ? 

I  shall  try  to  answer  this  question  in  such  a  way  that  it 
will  not  merely  be  a  special  criticism  of  Monger's  formulation 
of  the  theory,  but  will  warrant  us  in  forming  an  opinion  on 
the  whole  theoretical  movement  that  reaches  its  highest 
development  with  Menger. 

In  doing  so  I  am  conscious  of  having  undertaken  one  of 
the  most  difficult  tasks  in  criticism.  Difficult  through  the 
general  nature  of  the  matter,  which  has  for  so  many  decades 
baffled  the  endeavours  of  the  most  prominent  minds ;  difficult, 
in  particular,  because  I  shall  be  compelled  to  oppose  opinions 
put  forward,  after  most  careful  consideration,  by  the  best  minds 
of  our  nation,  and  supported  with  most  marvellous  ingenuity ; 
difficult,  finally,  in  this,  that  I  shall  be  compelled  to  oppose 
ideas  that  were  once  vehemently  contested  in  long  past  times, 
then  won  most  brilliant  victory  over  their  opponents,  and  since 
then  have  been  taught  and  believed  in  as  dogmas.  For  what 
follows,  then,  I  must  particularly  ask  the  reader  to  grant  me 
an  unbiassed  hearing,  patience,  and  attention. 


CHAPTEE    III 

PLAN    OF    CRITICISM 

ALL  the  Use  theories  rest  on  the  following  assumption.  Not 
only  does  real  capital  itself  possess  value,  but  there  is  a  Use 
(Nutzun-g)  of  capital  which  exists  as  an  independent  economical 
good,  possessing  independent  value ;  and  this  latter  value, 
together  with  the  value  of  the  capital,  makes  up  the  value  of 
the  product  of  capital. 

Now  in  opposition  to  this  I  maintain : — 

1.  There  is  no  independent  "use  of  capital,"  such  as  is 
postulated  by  the   Use  theorists ;   there    can,  therefore,  be  no 
independent  value  of  the  kind  asserted,  and  the  phenomenon 
of    "  surplus    value "    cannot    thus    be    accounted    for.       The 
assumption  is  nothing  but  the  product  of  a  fiction  which  is  in 
contradiction  of  actual  fact.1 

2.  Even  if  there  were  a  "  use  of  capital "  of  such  a  nature 
as  is  assumed  by  the  Use  theorists,  the  actual  phenomena  of 
interest  would  not  be  satisfactorily  explained  thereby. 

The  Use  theories,  therefore,  rest  on  a  hypothesis  which 
contradicts  actual  facts,  and  is,  besides,  insufficient  to  explain 
the  phenomena  in  question. 

In  proceeding  to  prove  these  two  theses,  I  feel  that  I  stand  in 
a  somewhat  unfortunate  position  as  regards  the  former.  While 
the  discussion  of  the  second  thesis  opens  up  virgin  soil,  un- 

1  To  guard  against  a  misunderstanding  which  I  should  very  much  deprecate, 
let  me  say  in  so  many  words  that  I  have  no  intention  of  denying  the  existence 
of  "  uses  of  capital "  in  general.  What  I  must  deny  is  the  existence  of  that 
special  something  which  our  theorists  point  to  as  the  "use"  of  capital,  and 
which  they  endow  with  a  variety  of  attributes  that,  in  my  opinion,  go  against 
the  nature  of  things.  But  this  is  anticipating.. 


CHAP,  in  PLAN  OF  CRITICISM  215 

disturbed  as  yet  by  the  strife  of  economists,  the  first  seems  to 
put  me  in  the  position  of  attacking  a  res  judicata, — a  case  long 
ago  carried  up  through  all  courts,  and  long  ago  decided  con- 
clusively against  me.  It  is,  indeed,  essentially  the  same  question 
as  was  in  dispute  centuries  ago  between  the  canonists  and  the 
defenders  of  loan  interest.  The  canonists  mainlined  :  P^perty 
in  a  thing  includes  all  the  uses  that  can  d  made  f  it ; 
there  can,  therefore,  be  no  separate  use  which  stands  v  atside 
the  article  and  can  be  transferred  in  the  loan  along  with  it. 
The  defenders  of  loan  interest  maintained  that  there  was 
such  an  independent  use.  And  Salmasius  and  his  followers 
managed  to  support  their  views  with  such  effectual  arguments 
that  the  public  opinion  of  the  scientific  world  soon  fell  in 
with  theirs,  and  that  to-day  we  have  but  a  smile  for  the 
"  short-sighted  pedantry  "  of  these  old  canonists. 

Now  fully  conscious  that  I  am  laying  myself  open  to  the 
charge  of  eccentricity,  I  maintain  that  the  much  decried  doctrine 
of  the  canonists  was,  all  the  same,  right  to  this  extent ; — that 
the  independent  use  of  capital,  which  was  the  object  of  dispute, 
has  no  existence  in  reality.  And  I  trust  to  succeed  in  proving 
that  the  judgment  of  the  former  courts  in  this  literary  process, 
however  unanimously  given,  was  in  fact  wrong. 

In  the  next  few  chapters,  then,  I  hope  to  prove  my  first 
thesis — that  there  is  no  "  use  of  capital  "  of  the  kind  postulated 
by  the  Use  theorists. 

The  first  thing  we  have  to  do  is  of  course  to  define  the 
subject  of  discussion.  What  then  is  this  Use,  this  Nutzuny, 
the  independent  existence  of  which  is  maintained  by  the  Use 
theorists  and  denied  by  me  ? 

As  to  the  nature  of  the  Use  there  is  no  agreement  among 
the  theorists  themselves.  Menger  in  particular  gives  an  essen- 
tially different  reading  of  the  conception  from  that  of  his  prede- 
cessors. In  view  of  this  I  find  it  necessary  to  divide  my 
inquiry  into  at  least  two  parts,  the  first  of  which  has  to  do 
with  the  conception  given  by  the  Say-Hermann  school,  while 
the  second  will  deal  with  Monger's  conception, 


CHAPTER    IV 

THE    USE    OF  CAPITAL  ACCORDING   TO   THE   SAY-HERMANN   SCHOOL 

AMONG  the  writers  of  the  Say-Hermann  school  there  obtains 
no  exact  agreement  in  the  description  and  definition  of  the 
Use.  But  this  want  of  agreement  appears  to  me  traceable,  not 
so  much  to  any  real  difference  of  opinion  about  the  subject,  as 
to  their  common  failure  to  give  any  clear  account  of  its  nature. 
They  hesitate  in  their  definitions,  not  because,  they  have  different 
objects  in  view,  but  because,  of  the  one  object  that  all  have  in 
view,  they  have  only  uncertain  vision.  One  proof  of  this  lies 
in  the  fact  that  the  individual  Use  theorists  get  into  contra- 
diction with  their  own  definitions  almost  as  often  as  with  those 
of  their  colleagues.  In  this  chapter  we  shall  gather  together 
provisionally  the  more  important  readings  of  the  conception. 

Say  speaks  of  the  "  productive  services  "  of  capital,  and 
defines  them  as  a  "  labour  "  which  capital  performs. 

Hermann  in  one  place  (p.  109)  defines  the  Nutzung  of 
goods  as  their  Gebrauch.  He  repeats  this  on  p.  Ill,  where  he 
says  that  the  Gebrauch  of  goods  of  perishable  material  may  be 
thought  of  as  a  good  in  itself,  as  a  Nutzung.  If  Gebrauch  here 
is  simply  identified  with  Nutzung,  this  is  not  the  case  in  a 
passage  on  p.  125,  where  Hermann  says  that  the  Gebrauch  is  the 
employment  of  the  Nutzung.  On  p.  287,  finally,  he  explains 
"  the  holding  together  of  the  technical  elements  of  the  product" 
as  the  "  service,"  the  "  objective  Nutzung  "  of  floating  capital. 

Knies  also  identifies  Gebrauch  and  Nutzung.1 

Schaffle  in  one  place  defines  Nutzung  as  the  "employment" 
of  goods  (Gesell.  System,  iii.  p.  143);  similarly  on  p.  266 
as  "acquisitive  employment."  On  p.  267  he  calls  it  "the 

1  Geld,  p.  61:  "  Nutzung =i\\z  GebraucJi  of  a  good  lasting  over  a  period  of 
time,  and  limitable  by  moments  of  time. " 


CHAP,  iv  THE  NUTZUNG  217 

working  of  an  economical  subject  by  means  of  wealth,  a  using 
of  wealth  towards  fruitful  production."  On  the  same  page  it  is 
called  a  "  devotion  "  of  wealth  to  production ;  with  which  it  is 
a  little  inconsistent  that,  on  the  next  page,  he  speaks  of  a 
devotion  of  the  Nutzung  of  capital — that  is,  of  the  devotion  of 
a  devotion.  In  the  Bau  und  Leben,  finally,  Schaffle  explains 
the  uses  in  one  place  (iii.  p.  258)  as  "functions  of  goods"; 
somewhat  later  (p.  259)  as  "equivalents  of  useful  materials  in 
living  labour  " ;  while  on  p.  260  the  Nutzung  is  defined  as  the 
"  releasing  of  the  utility  (Nutzcri)  from  material  goods." 

If  we  look  more  closely  at  this  somewhat  chequered  array 
of  definitions  and  explications  we  may  see  in  them  two  in- 
terpretations of  the  conception  of  use,  a  subjective  and  an 
objective.  These  two  interpretations  correspond  pretty  exactly 
with  the  double  sense  in  which  the  ^word  Use  or  Nutzung 
is  generally  employed  in  ordinary  speech.  It  indicates,  on 
the  one  hand,  the  subjective  activity  of  the  one  who  uses, 
and  is  called  in  German  indifferently  Benutzung  or  Gebrauch 
in  the  subjective  sense  of  that  equally  ambiguous  word ;  or, 
more  significantly,  GebrauchsJiandlung.  And,  on  the  other 
hand,  it  indicates  an  objective  function  of  the  goods  that 
are  used ;  a  service  issuing  from  the  goods.  The  subjec- 
tive interpretation  appears  vaguely  in  Hermann's  identifica- 
tion of  Nutzung  and  Gebrauch,  and  very  strongly  in  Schaffle's 
earlier  work.  The  objective  interpretation  distinctly  predomi- 
nates with  Say ;  almost  as  distinctly  with  Hermann,  who,  indeed, 
in  one  place  speaks  explicitly  of  the  "  objective  use  "  of  capital ; 
and  even  Schaffle  inclines  to  it  in  his  latest  work  when  he 
speaks  of  the  use  as  a  "  function  of  goods." 

It  is  easy  to  see  that  of  the  two  interpretations  it  is  simply 
and  solely  the  objective  that  accords  with  the  character  of  the 
Use  theory.  For,  taking  it  only  on  the  most  obvious  grounds, 
it  is  absolutely  impossible  to  give  a  subjective  meaning  to  those 
uses  of  capital  which  the  borrower  buys  from  the  lender,  and 
pays  with  loan  interest.  These  cannot  be  acts  of  use  performed 
by  the  lender,  for  he  does  not  perform  any  such.  Nor  can 
they  be  acts  of  use  performed  by  the  borrower,  for,  although 
he  may  intend  to  perform  such  actions,  he  does  not  of  course 
require  to  buy  his  own  actions  from  the  lender.  To  speak, 
therefore,  of  a  transference  of  the  uses  of  capital  in  the  loan, 


218  THE  NUTZUNG  BOOK  in 

has  a  meaning  only  if  we  understand  by  the  word  "uses"  objective 
elements  of  use  of  some  kind  or  other.  I  think,  then,  that  I 
am  justified  in  leaving  out  of  account,  as  inconsistencies  that 
contradict  the  spirit  of  their  own  theory,  those  subjective 
interpretations  of  use  that  are  to  be  found  sporadically  in  indi- 
vidual Use  theorists,  and  in  confining  myself  exclusively  to  the 
objective  interpretations  which  have  been  adopted  by  the  majority, 
and  which,  since  Schaffle's  change  of  front,  are  the  only  recognised 
interpretations.  By  Use,  then,  in  the  sense  given  it  by  the  Say- 
Hermann  school,  we  have  to  think  of  an  objective  useful  element 
which  proceeds  from  goods,  and  acquires  independent  economical 
existence  as  well  as  independent  economical  value. 

Now  nothing  can  be  more  certain  than  that  there  are,  in 
fact,  certain  objective  useful  services  of  goods  that  obtain 
economical  independence,  and  may,  not  unfitly,  be  designated 
by  the  name  of  Uses  (Nutzungeri).  I  have  already,  in  another 
place,  treated  of  these  in  detail,  and  done  my  utmost  to  de- 
scribe their  true  nature  as  exactly  and  thoroughly  as  possible.1 
Singularly  enough,  this  attempt  of  mine  stands  almost  alone  in 
economic  literature.  I  say  "  singularly  enough  "  deliberately, 
for  it  does  seem  to  me  a  very  wonderful  thing  that,  in  a 
science  which  from  beginning  to  end  turns,  as  on  its  axis,  on 
the  satisfying  of  needs  by  means  of  goods, — on  the  relation 
of  use  between  men  and  goods, — no  inquiry  has  ever  been 
made  into  the  technical  character  of  the  use  of  goods.  Or 
that,  in  a  science  where  pages,  chapters,  even  monographs  have 
been  written  on  many  another  conception,  not  a  couple  of  lines 
should  have  been  devoted  to  the  definition  or  explanation  of 
the  fundamental  conception  "  use  of  a  good,"  and  that  the 
expression  should  be  dragged  into  every  theoretical  research  in 
all  the  confusion  and  ambiguity  which  it  has  in  ordinary  life. 

Since  for  our  present  purpose  everything  depends  on  us 
getting  a  reliable  idea  of  the  useful  functions  which  goods 
serve,  I  must  at  this  point  go  into  the  matter  with  some 
exactitude ;  only  begging  the  reader  not  to  look  on  what 
follows  as  a  digression,  but  as  strictly  germane  to  the  subject.2 

1  See  my  Rechtc  uiid  Verhdltnisse  vom  Standpunkt-e  der  volkwirthscluiftlichen 
Giitcrlehrc,  Innsbruck,  1881,  p.  51. 

2  I  take  the  liberty  in  the  next  chapter  of  repeating,  partly  in  the  same  words, 
the  argument  of  my  Rnshte  und  VerMltnissc,  which  was  written  some  time  ago 
with  a  view  to  the  present  work. 


CHAPTER  V 

THE  TRUE  CONCEPTION  OF  THE  USE  OF  GOODS 

ALL  material  goods  (Sachyuter)  are  of  use  to  mankind  through 
the  action  of  the  natural  powers  that  reside  in  them.  They 
are  a  part  of  the  material  world,  and  for  that  reason  all  their 
working,  including  their  useful  working,  must  bear  the 
character  that  working  generally  has  in  the  material  world  ; 
it  is  a  working  of  natural  powers  according  to  natural  laws. 
What  distinguishes  the  working  of  material  goods  from  the 
working  of  other  kinds  of  natural  things,  harmless  or  hurtful, 
is  the  single  circumstance,  that  the  results  of  such  working 
admit  of  being  directed  towards  the  advantage  of  man,  this 
direction  also  being  under  the  rule  of  natural  laws.  That  is 
to  say,  all  things  are  endowed  simply  with  working  natural 
powers,  but  experience  shows  that  these  powers  only  admit 
of  being  directed  to  a  definitely  useful  end,  when  the  matter 
which  possesses  these  powers  has  taken  on  certain  forms  that 
are  favourable  to  them  being  so  directed.  All  matter  on  the 
surface  of  the  earth,  for  instance,  among  other  forms  of  energy, 
possesses  an  amount  of  energy  corresponding  to  its  distance 
from  the  centre  of  the  earth.  But  while  men  can  do  nothing 
with  this  form  of  energy  when  stored  up  in  a  mountain,  that 
same  energy  is  useful  to  them  when  the  matter  possessing  it 
has  taken  on  some  form  they  wish — that  is,  some  form  in  which 
the  energy  is  available ;  say,  that  of  a  clock  pendulum,  or  a 
paper  weight,  or  a  hammer.  The  energy  of  chemical  affinity 
which  carbon  possesses  is  identical  in  every  molecule  of  it.  We 
get  a  direct  economic  utility,  however,  from  the  results  of  tin's 
energy  only  when  the  carbon  has  taken  such  forms  as  that  of 
wood  or  coal ;  not  when  it  exists  as  part  of  one  of  the  con- 


220  TRUE  CONCEPTION  OF  USE  OF  GOODS      BOOK  in 

stituents  of  the  air.  We  may  therefore  say  that  the  nature  of 
material  goods,  as  opposed  to  those  material  things  that  are 
not  useful,  is  that  they  are  such  special  forms  of  matter  as 
admit  of  the  natural  powers  they  possess  being  directed  to  the 
advantage  of  man. 

From  this  follow  two  important  inferences,  of  which  one 
concerns  the  character  of  the  useful  functions  of  material 
goods,  and  the  other  concerns  the  character  of  the  use 
(Gebraucli)  of  goods. 

The  function  of  goods  can  consist  in  nothing  else  than  in 
a  giving  off,  or  rendering  up,  or  putting  forth  of  power ;  or,  to 
use  the  terminology  of  physical  science,  the  passing  of  energy 
into  work.  On  the  natural  side  it  shows  a  complete  parallelism 
with  the  character  of  the  useful  function  performed  by  a 
manual  labourer.  In  the  same  way  as  a  porter  or  a  navvy 
is  of  use,  when  he  puts  forth  the  natural  power  residing 
in  his  body  in  the  form  of  rendering  useful  services,  so 
are  material  goods  of  use  through  concrete  forthputting  of  the 
natural  powers  inherent  in  them  and  capable  of  direction — 
physically  speaking,  through  the  forthputting  in  work  of 
the  available  forms  of  energy  they  possess.  It  is  by  the 
passing  of  available  energy  into  work  that  the  "  use "  of 
goods  is  obtained  by  man.1 

The  use  (Gfebrauck)  of  a  thing  then  is  realised  in  this  way: 
man  takes  the  peculiar  forms  of  energy  of  the  good  at  the 
proper  time,  supplies  the  conditions  necessary  to  render  them 
available  where  they  previously  existed  in  an  unavailable  form, 
and  then  brings  these  forms  of  energy  into  proper  connection 
with  that  object  in  which  the  useful  effect  is  to  take  place. 
For  instance,  in  order  to  "  use  "  the  locomotive  the  stoker  fills 
the  boiler  with  water,  applies  heat,  and  thus  obtains  in  an 
available  form  the  heat  energy  of  the  steam,  which  is  trans- 
ferred into  energy  of  motion  of  the  locomotive.  This  last- 

1,I  may  remind  the  reader  that,  according  to  the  scientific  conception  of 
energy — energy  being  that  quality  the  possession  of  which  confers  upon  a  body 
the  power  of  doing  work — it  may  exist  either  as  available  or  unavailable  energy ; 
that  is,  the  body  may  possess  energy  of  which  a  use  can  be  made,  or  it  may 
possess  energy  of  which  no  use  can  be  made.  Thus  the  storage  of  energy  in 
certain  material  bodies  in  an  unavailable  form,  and  the  change  of  this  unavailable 
into  available  energy,  by  means  of  which  work  is  done  that  has  a  direct  influ- 
ence on  the  satisfaction  of  human  wants,  is  just  the  physical  conception  applied 
to  economics. — W.  S. 


CHAP,  v  THE  MATERIAL  SERVICES  221 

named  energy  is  then  transferred  by  connection  to  the  carriages 
that  convey  persons  or  goods.  Or  one  brings  a  book  into  the 
necessary  relation  with  his  eye  for  the  image,  which  is  continu- 
ally being  formed  by  reflection,  to  fall  on  the  retina ;  or  brings 
the  house  which  continually  offers  shelter  into  proper  relation 
with  his  whole  person.  But  any  "use"  of  material  goods 
which  does  not  consist  in  the  receiving  from  them  of  useful 
results  due  to  their  inherent  powers  or  forms  of  energy,  is 
absolutely  unthinkable. 

I  think  I  need  have  no  fear  of  the  propositions  I  have 
just  advanced  meeting  with  any  scientific  opposition.  The 
conception  laid  down  is  no  longer  strange  in  our  economic 
literature ; l  and  in  the  present  state  of  the  natural  sciences 
the  acceptance  of  it  has  indeed  become  a  peremptory  necessity. 
If  by  any  chance  it  should  be  objected  that  this  conception  is 
one  that  belongs  to  the  natural  sciences  and  is  not  an  economic 
one,  I  answer  that  in  these  questions  economic  science  must 
leave  the  last  word  to  natural  science.  The  principle  of  the 
unity  of  all  science  demands  it.  Economic  science  does  not 
explain  the  facts  that  belong  to  its  province  to  the  very  bottom, 
any  more  than  any  other  science  does.  It  solves  only  one 
portion  of  the  causal  connection  that  binds  together  the  pheno- 
mena of  things,  and  leaves  it  to  other  sciences  to  carry  the 
explanation  farther.  Not  to  mention  other  limiting  sciences, 
the  sphere  of  economic  explanation  lies  between  the  sphere 
of  psychological  explanation  on  the  one  hand,  and  that 
of  the  natural  sciences  on  the  other.  To  give  a  concrete 
example.  Economic  science  will  explain  thus  far  the  cir- 
cumstance that  bread  has  an  exchange  value :  it  will  point 
out  that  bread  is  able  to  satisfy  the  want  of  sustenance, 
and  that  men  have  a  tendency  to  ensure  the  satisfaction 
of  their  wants,  if  necessary  by  making  a  sacrifice.  But 
that  men  have  this  tendency,  and  why  they  have  it,  is  not 
explained  by  economic  science  but  by  psychology.  To  explain 
that  men  want  sustenance  and  why,  falls  within  the  domain 
of  physiology.  Finally,  it  also  falls  within  the  sphere  of 

1  Schaffle,  in  particular,  in  the  third  volume  of  his  Bau  und  Leben,  very 
beautifully  puts  the  same  point  of  view.  Schaffle,  I  may  say,  forms  an  honour- 
able exception  among  economists  as  regards  this  objectionable  habit  of  not  taking 
any  trouble  with  the  principles  that  regulate  the  working  of  goods. 


222  TRUE  CONCEPTION  OF  USE  OF  GOODS     BOOK  in 

physiology  to  explain  that  bread  is  able  to  satisfy  that  want, 
and  why  it  is  able  to  do  so,  but  physiology  does  not  finish  the 
explanation  within  its  own  sphere ;  it  has  to  call  in  assistance 
from  the  more  general  physical  sciences. 

Now  it  is  clear  that  all  explanations  given  by  economic 
science  have  a  value  only  under  this  condition,  that  they  are 
continuous  with  the  related  sciences.  The  explanations  of 
economics  cannot  rest  on  anything  that  a  science  related  to  it 
is  bound  to  declare  untrue  or  impossible ;  otherwise  the  thread 
of  the  explanation  is  broken  from  the  first.  It  must  on  that 
account  keep  exactly  in  touch  with  the  related  sciences  at  the 
points  where  they  limit  it,  and  one  such  point  is  just  this 
question  as  to  the  working  of  material  goods. 

The  one  thing  of  which  I  have,  perhaps,  some  reason  to 
be  afraid  is,  that  the   employment  of  this  physical   concep- 
tion  in   regard  to  a  certain  limited  class  of  material  goods, 
especially  to   the  so-called  "ideal  goods,"  may  be  somewhat 
startling  at  the  first  glance  to  some  readers.     That,  e.g.  a  fixed 
and  stationary  dwelling-house,  a  volume  of  poems,  or  a  picture  of 
Eaphael  should  be  of  use  to  us  through  the  forthputting  of 
inherent  properties  connected  with  one  or  other  of  the  forms 
of  energy,  or,  as  we  may  shortly  express  it,  the  forthputting  of 
its  natural  powers,  may  at  first,  I  admit,  be  a  little  strange. 
Objections  like  these,  however,  which  have  their  origin  more 
in  feeling  than  in  understanding,  may  be  removed  by  a  single 
consideration.     All  the  things  that  I  have  named  enter  into 
the  relation  which  makes  them  "  goods  "  only  in  virtue  of  the 
peculiar  natural  powers  which  they  possess,  and  possess,  indeed, 
in  peculiar  combination.     That  a  house  shelters  and  warms,  is 
nothing  else  than  a  result  of  the  forces  of  gravity,  cohesion, 
and    resistance,    of    impenetrability,    of    the    non-conducting 
quality  of  building  materials.     That  the  thoughts  and  feelings 
of  the   poet   reproduce   themselves   in  us   is   mediated,  in   a 
directly  physical  way,  by  light,  colour,  and  form  of  written 
characters ;  and  it  is  this  physical  part  of  the  mediation  which 
is  the  office  of  the  book.     There  must  of  course  have  been  a 
poet  soul  in  whom  ideas  and  feelings  waked,  and,  again,  it  is 
only  in  a  spirit  and  through  spiritual  forces  that  they  can  be 
reawakened ;  but   the  way  of  spirit   to  spirit   lies  some  little 
distance  through  the  natural  world,  and  over  this  distance  even 


CHAP,  v  THE  MATERIAL  SERVICES  223 

the  spiritual  must  make  use  of  the  vehicle  of  natural  powers. 
Such  a  natural  vehicle  is  the  book,  the  picture,  the  spoken 
word!  Of  themselves  they  give  only  a  physical  suggestion, 
nothing  more ;  the  spiritual  we  give  of  our  own  on  accepting 
the  suggestion ;  and  if  we  are  not  prepared  beforehand  for  a 
profitable  acceptance  of  it, — if  we  cannot  read,  or,  reading,  can- 
not understand,  or  cannot  feel, — it  remains  simply  a  physical 
suggestion. 

With-  these  explanations  perhaps  I  may  consider  it 
established  beyond  question  that  material  goods  exert  their 
economical  use  through  the  forthputting  of  the  natural  powers 
residing  in  them. 

The  individual  useful  forthputtings  of  natural  powers  that 
are  obtainable  from  material  goods  I  propose  to  designate  as 
"  Material  Services."  l  In  itself,  indeed,  the  word  Use  (Nufzung) 
would  not  be  inappropriate,  but  to  adopt  it  would  be  to 
surrender  our  conception  to  all  the  obscurity  that  now,  un- 
fortunately, hangs  over  that  ambiguous  expression.2 

The   conception   of    Material   Services  is,  in  my  opinion, 

1  I  have  already  introduced  this  term  Nutzleistung  in  my  Rechte  und  Verlw.lt- 
nisse ;  before  that  I  used  it  in  a  work  written  in  1876  but  not  printed.     It  is 
employed   by  Kuies  several  times   in   the  second    portion  of  his  KrecUt,   but 
unfortunately  in  the  same  ambiguous   sense   in   which   on   other   occasions   he 
uses  the  word  Nutzung. 

NOTE  BY  TRANSLATOR. 

After  much  deliberation  Material  Service  is  the  nearest  rendering  I  can  give  to 
the  word  Nutzleistung,  introduced  by  Professor  Bohm-Bawerk.  Every  translator 
finds  the  difficulty  of  rendering  scientific  terms  irom  one  language  into  another, 
but  this  difficulty  is  greater  in  political  economy,  where  we  are  bound  to  use  words 
"  understanded  of  the  people."  The  word  Nutzlcistung  is  one  of  these  happy 
combinations  which,  as  compounded  of  two  familiar  words,  do  not  strike  a  German 
as  peculiar  or  clumsy,  and  are  yet  strict  enough  to  satisfy  scientific  requirements. 
But  our  language  does  not  admit  of  many  sucli  combinations — the  literal 
translation  "use  rendering"  at  once  shows  the  impossibility  in  the  present  case 
— and  in  a  translation  one  does  not  feel  justified  in  coining  a  new  word.  In  ren- 
dering the  word  thus  it  becomes  necessary  to  eliminate  a  note  that  follows  in  the 
German  edition,  where  Professor  Bohm-Bawerk  congratulates  himself  on  having 
escaped  Say's  services  product  if  s,  which  might  be  objected  to  on  the  ground  that 
"  only  a  person,  not  a  thing,  can  render  services."  The  prefix  "  material  "  seems 
to  me  fairly  to  meet  this  objection,  as  the  total  expression  now  implies  a  service 
— a  forthputting  of  natural  powers  in  the  service  of  man — rendered  by  a  material 
object.— W.  S. 

2  After    this    clause,    in    the    German    edition,    come    the   words:    "Und 
andererseits  scheint  mir  der  Name  Nutzleistung  in  der  That  ausserordentiich 
pragnant  zu  sein  :  es  sind  im  eigenstlichen  Wortsinn  niitzliche  Krafteleistungen, 
die  von  den  Sachgiitern  ausgehen. " — W.  S. 


224  TRUE  CONCEPTION  OF  USE  OF  GOODS     BOOK  HI 

destined  to  be  one  of  the  most  important  elementary  concep- 
tions in  economic  theory.  In  importance  it  does  not  come 
Behind  the  conception  of  the  economic  Good.1  Unfortunately 
up  till  now  it  has  received  little  attention  and  little  develop- 
ment. From  the  nature  of  our  task  it  is  indispensable  that 
we  should  repair  this  neglect,  and  follow  out  some  of  the  more 
important  relations  into  which  the  material  services  enter  in 
economic  life. 

First  of  all,  it  is  clear  that  everything  which  would  lay 
claim  to  the  name  of  a  "  good  "  must  be  capable  of  rendering 
material  services,  and  that,  with  the  exhausting  of  this  capa- 
bility, it  ceases  to  have  the  quality  of  a  good ;  it  falls  out  of 
the  circle  of  "  goods  "  back  into  the  circle  of  simple  "things." 
An  exhaustion  of  this  capability  must  not  be  thought  of  as  an 
exhaustion  of  the  capability  to  exert  or  to  put  forth  energy  in 
general ;  for  what  we  have  called  the  "  natural  powers "  of 
the  material  are  as  imperishable  as  the  material  itself.  But 
although  these  powers  or  forms  of  energy  never  cease  to  exist 
in  some  form  or  other,  they  may  very  well  cease  to  be  available 
for  material  services  in  this  way,  that  the  original  good,  in  the 
course  of  doing  work,  has  undergone  such  a  change, — be  it 
separation,  dislocation,  or  uniting  of  its  parts  with  other  bodies, 
— that,  in  its  changed  form,  its  energy  is  no  longer  available 
for  human  use.  For  instance,  when  the  carbon  of  the  wood 
burned  in  the  blast  furnace  has  combined  with  oxygen  in  the 
combustion  process,  its  powers  cannot  again  be  employed  to 
smelt  iron,  although  these  powers  are  constant,  and  continue 
to  work  according  to  natural  laws.  The  broken  pendulum 
retains  its  energy  due  to  gravity  just  as  it  did  before,  but  the 
loss  of  the  pendulum  form  does  not  allow  of  this  energy  being 
directed  to  regulate  the  clock.  The  exhaustion  of  capability 
to  render  material  services  we  are  accustomed  to  call  the  using 
up  or  Consumption  of  goods. 

1  It  is  unfortunate  that  in  English  economics  we  have  devoted  so  little 
attention  to  this  most  elementary  conception,  on  which  Menger,  in  particular,  has 
bestowed  so  much  pains.  The  poverty  of  our  scientific  nomenclature  shows  this  de- 
fect very  markedly :  the  word  "commodity"  is  really  the  only  singular  equivalent 
we  have  for  the  familiar  and  suggestive  word  "goods,"  although  I  personally  have 
not  scrupled  to  translate  the  German  Gut  by  the  English  "good."  There  is,  in- 
deed, reason  for  Mr.  Ruskin's  sarcasm  that  our  most  famous  treatise  on  Wealth 
does  not  even  define  the  meaning  of  the  word  "wealth." — W.  S. 


CHAP,  v  THE  MATERIAL  SERVICES  225 

While  all  goods  thus  agree  and  must  agree  in  this, 
that  they  have  to  render  material  services,  they  differ 
essentially  from  one  another  in  the  number  of  services 
that  they  have  to  render.  On  this  rests  the  familiar 
division  of  goods  into  perishable  and  non-perishable,  or 
better,  into  perishable  and  durable.1  Many  goods  are  of 
such  a  nature  that,  to  render  the  uses  peculiar  to  them,  they 
must  give  forth  their  whole  power,  as  it  were,  at  a  blow,  in 
one  more  or  less  intense  service,  so  that  their  first  use  quite 
exhausts  their  capability  of  service,  and  is  their  consumption. 
These  are  the  so-called  perishable  goods,  such  as  food,  gun- 
powder, fuel,  etc.  Other  goods,  again,  are,  in  their  nature, 
capable  of  rendering  a  number  of  material  services  in  the  way 
of  giving  off  these  services  successively,  within  a  shorter  or 
longer  period  of  time ;  and  thus  after  a  first,  or  even  after  many 
acts  of  use,  they  may  retain  their  capability  of  rendering  further 
services,  and  so  retain  their  character  of  goods.  These  are 
the  durable  goods,  such  as  clothing,  houses,  tools,  precious 
stones,  land,  etc. 

Where  a  good  successively  gives  off  a  number  of  material 
services,  it  may  do  so  in  one  of  two  ways :  either  the  services 
following  each  other  evidently  separate  themselves  from  each 
other,  as  clearly  marked  single  acts,  in  such  a  way  that  they 
are  easily  distinguished,  limited,  and  counted, — as,  e.g.  the  single 
blows  of  a  coining  press,  or  the  operations  of  the  automatic 
printing  press  of  a  great  newspaper;  or  they  issue  from  the 
goods  in  unbroken,  similar  continuance, — as,  e.g.  the  shelter 
silently  given  over  long  periods  of  time  by  a  dwelling-house. 
If,  however,  it  is  desired,  in  cases  of  this  sort,  to  separate  and 
divide  the  continuous  amount  of  services — and  practical  need 
often  requires  this — the  expedient  is  adopted  that  is  generally 
taken  in  the  dividing  of  continuous  quantities:  the  dividing 
line  that  does  not  suggest  itself  in  the  phenomena  under 
consideration  is  borrowed  from  some  outside  circumstance,  e.g. 
from  the  lapse  of  a  definite  time;  as  when  one  delivers  over 
to  the  hirer  of  a  house  the  services  to  be  rendered  by  the 
house  during  the  year. 

Another  essential  feature  that  meets  us  in  the  analysis  of 

1  Even  the  so-called  non-perishable  goods  are  perishable,  however  gradually 
they  perish. 

Q 


226          TRUE  CONCEPTION  OF  USE  OF  CAPITAL    BOOK  HI 

material  services  is  their  capability  of  obtaining  complete  eco- 
nomical independence.  The  source  of  this  phenomenon  is  that 
in  very  many,  indeed  in  most  cases,  the  satisfaction  of  a  con- 
crete human  want  does  not  demand  the  exhaustion  of  the  entire 
useful  content  of  a  good,  but  only  the  rendering  of  a  single 
material  service.  In  virtue  of  this  the  single  service  in  the 
first  instance  obtains  an  independent  importance  as  regards 
the  satisfaction  of  our  wants,  and  then  in  practical  economic 
life  this  independence  is  fully  recognised.  We  give  the 
recognition  (1)  wherever  we  make  an  independent  estimate 
of  the  value  of  isolated  services ;  and  (2)  wherever  we  make 
them  into  independent  objects  of  business  transactions.  This 
latter  i.:<.ppens  T  ">en  we  sell  or  exchange  single  services,  or 
groups  of  servi  s,  apart  from  the  goods  from  which  they 
proceed.  Economical  custom  and  law  have  created  a  number 
of  forms  in  which  this  is  effectuated.  Among  the  most 
important  of  these  I  may  name  the  relations  of  tenancy,  of 
hire,  and  of  the  old  commodatum ; l  further,  the  institution  of 
easements,  of  fee  farm,  of  copyhold  (emphyteusis  and  siqwrficies). 
A  little  considerac.on  will  convince  us  that,  as  a  fact,  all  these 
forms  of  transaction  agree  in  this,  that  one  portion  of  the 
services  of  which  a  good  is  capable  is  divided  off  and 
transferred  separately,  while  the  rest  of  the  anticipated  services, 
be  they  many  or  few,  remain  with  the  ownership  of  the  body 
of  the  good,  in  the  hands  of  the  owner  of  the  good.2 

Finally,  it  is  of  great  theoretic  importance  to  determine 
the  relations  that  exist  between  the  material  services  and 
the  goods  from  which  they  proceed.  On  this  point  I  may 
put  down  three  cardinal  propositions,  all  of  which  appear  to 
me  so  obvious  that  we  may  dispense  here  with  any  detailed 
proof  of  them ;  more  especially  as  I  have  gone  thoroughly  into 
the  subject  on  another  occasion.3 

1.  It  seems  to  me  clear  that  we  value  and  desire  goods 
only  on  account  of  the  material  services  that  we  expect  from 
them.  The  services,  as  it  were,  form  the  economical  substance 

1  Not  of  the  loan  ;  see  below. 

-  See  also  my  Reclitc  nnd  Verhiiltnissc,  p.  70,  etc. 

3  In  my  Re.t-.hte  und  Vcrluiltnissc,  p.  60,  where,  in  particular,  I  have  stated 
the  character  of  the  material  services  as  primary  elements  of  our  economic  trans- 
actions, and  have  deduced  the  value  of  goods  from  the  value  of  the  material 
services. 


CHAP,  v  THE  MATERIAL  SERVICES  227 

with  which  we  have  to  do.     The  goods  themselves  form  only 
the  bodily  shell. 

2.  It  follows  from  the  above,  and  appears  to  me  equally 
beyond    doubt,   that,  where    entire    goods    are    obtained    and 
transferred,  the  economical  substance  of  such  transactions  always 
lies  in  the  acquisition  and  the  transference  of  material  services  ; 
indeed  of  the  totality  of  these  services.     The  transference  of  the 
goods  themselves  constitutes  only  a  form — certainly  a  form  that, 
in  the  nature  of  things,  is  very  prominent,  but  still  only  an  accom- 
panying and  limiting  form.      To  buy  a  good  can  mean  nothing, 
economically  speaking,  but  to  buy  all  its  material  services.1 

3.  From  this,  finally,  comes  the  important  conclusion  that 
the  value  and  price  of  a  good  is  nothing  else  than  the  value 
and  price  of  all  its  material  services  thrown  together  into  a 
lump  sum;  and  that  accordingly  the  value  and  price  of  each 
individual  service  is  contained  in  the  value  and  price  of  the 
good  itself.2 

Before  going  farther  let  me  illustrate  these  three  proposi- 
tions by  a  concrete  example.  I  think  all  readers  will  agree 
with  me  when  I  say  that  a  cloth  manufacturer  values  and 
demands  looms  only  because  he  expects  to  get  from  the  looms 
the  useful  energies  peculiar  to  them ;  that  not  only  when  he 
hires  a  loom,  but  when  he  buys  it,  he  looks,  as  a  fact,  to  the 
acquisition  of  its  services  ;  and  that  the  ownership  he  acquires  at 
the  same  time  in  the  body  of  the  machine  only  serves  as  greater 
security  that  he  will  obtain  these  services.  Even  if  this  owner- 
ship in  point  of  law  appears  to  be  the  primary  thing,  economically 
it  is  certainly  only  the  secondary.  And,  lastly,  it  will  be  granted, 
I  think,  that  the  use  which  the  whole  machine  renders  is  nothing 
else  than  the  use  of  all  its  material  services  thrown  together 
into  one  sum ;  and  that  similarly  the  value  and  price  of  the 
whole  machine  is  nothing  else,  and  can  be  nothing  else,  than 
the  value  and  price  of  all  its  material  services  thrown  together 
into  one  sum. 

1  This  idea,  though  put  somewhat  differently,  is  explicitly  recognised  by 
Knies,  Der  Kredit,  part  ii.  pp.  34,  77,  78.  He  expressly  calls  the  selling  price 
of  a  house  the  price  of  the  permanent  use  of  a  house  in  opposition  to  the  hire 
price,  which  is  the  price  of  the  temporary  uses  of  the  same  good.  See  also  his 
Geld,  p.  86.  Schaffle  too  (Ban  imd  Leben,  second  edition,  iii.)  describes  goods 
as  "stores  of  useful  energies"  (p.  258). 

a  For  more  exact  statement,  see  my  Reckte  und  Verhaltnisse,  p.  64. 


CHAPTER   VI 

CRITICISM    OF   THE    SAY-HERMANN    CONCEPTION 

HAVING,  then,  sufficiently  explained  the  nature  and  the 
constitution  of  the  use  of  goods,  let  us  come  back  to  the 
principal  point  under  consideration — the  critical  examination 
of  the  conception  of  "  use  "  put  forward  by  the  Use  theorists. 

And  first  we  ask,  May  it  not  be  the  case  that  the  Uses 
(Nutzungeri)  of  the  Say-Hermann  school  are  identical  with  our 
Material  Services  (Nutzleistungeri)?  There  can  be  no  doubt  that 
they  are  not  identical.  That  something  which  the  school  in 
question  calls  "use"  is  intended  to  be  the  basis  and  the  equivalent 
of  net  interest.  The  material  services,  on  the  contrary,  are  some- 
times (in  the  case  of  durable  goods)  the  basis  of  gross  interest, 
embracing  the  net  interest  and  a  part  of  the  capital  value 
itself;  sometimes  (in  the  case  of  perishable  goods)  the  basis 
of  the  entire  capital  value.  If  I  buy  the  material  services 
of  a  dwelling-house,  I  pay  a  year's  rent  for  the  services  of 
one  year;  this  is  a  gross  interest.  If  I  buy  the  material 
services  of  a  cwt.  of  coal,  I  pay,  for  the  services  of  the  single 
hour  in  which  the  coal  burns  to  ashes,  the  whole  capital  value 
of  the  coal.  On  the  other  hand,  what  the  Use  theorists  call 
"use"  is  paid  for  quite  differently.  The  "use"  that  a  cwt.  of  coal 
gives  off  during  a  whole  year  attains  no  higher  price  than,  say, 
a  twentieth  part  of  the  capital  value  of  the  coal  Use  and 
Material  Service  must,  therefore,  be  two  quite  distinct  amounts. 
From  this,  among  other  things,  it  is  clear  that  those  writers 
who  defined  and  pointed  out  the  existence  of  what  we  have 
called  material  services,  under  the  idea  that  they  were 
defining  the  basis  of  net  interest,  and  pointing  to  it,  were 
under  a  serious  delusion.  This  criticism  applies  particularly 


CHAP,  vi    "NUTZUNGEN"  AND  "NUTZLEISTUNGEN"       229 

to  the  services  productifs  of  Say,  and  to  Schaffle's  earlier 
definitions  of  use. 

And  now  we  come  to  the  decisive  question.  If  what  the 
Use  theorists  called  "  uses  "  (Nutzungen)  are  anything  else  than 
the  "  material  services  "  of  goods,  does  their  conception  represent 
anything  real  ?  Is  it  conceivable  that  between,  beside,  or 
among  these  material  services  we  get  some  other  useful  thing 
from  goods  ? 

I  can  give  no  other  answer  to  this  question  than  the  most 
emphatic  No.  And  I  think  every  one  will  be  compelled  to  give 
this  answer  who  admits  that  material  goods  are  objects  of  the 
material  world ;  that  material  results  cannot  be  produced  other- 
wise than  through  manifestations  of  natural  powers ;  and  that 
even  the  "  utility  "  of  a  tiling  is  an  activity.  Granted  these 
premises, — none  of  which  are  likely  to  be  opposed, — it  appears 
to  me  that  no  other  kind  of  use  in  material  goods  is  con- 
ceivable than  that  which  comes  through  the  forthputting  of 
their  peculiar  natural  powers — that  is,  through  the  rendering 
of  Material  Services. 

But  it  is  not  even  necessary  to  appeal  to  the  logic 
of  the  natural  sciences.  I  appeal  simply  to  the  common 
sense  of  the  reader.  Take  an  example  or  two  to  remind 
us  of  what  we  mean  when  we  say  that  goods  are  "of 
use."  A  thrashing  machine,  there  is  no  doubt,  is  of  use 
economically  in  helping  to  thrash  corn.  How  does  it,  how 
can  it,  render  this  use  ?  Not  otherwise  than  through  putting 
forth  its  mechanical  powers  one  after  another,  till  such  time 
as  the  worn-out  mechanism  refuses  to  put  forth  any  more 
power  of  the  same  kind.  Can  any  reader  picture  to  himself 
the  effect  that  the  thrashing  machine  exerts  in  separating  the 
corn  from  the  ear  under  any  other  form  than  that  of  a 
forthputting  of  mechanical  power?  Can  he  imagine  one 
single  use  that  the  machine  could  exert  in  thrashing,  not 
through  putting  forth  of  power,  but  through  some  other  kind 
of  Nutzung  ?  I  doubt  it  very  much.  The  thrashing  machine 
either  thrashes  by  putting  forth  its  physical  powers,  or  it  does 
not  thrash  at  all 

It  would  be  useless  too  to  attempt  to  make  out  another 
kind  of  use  or  Nvizung  by  pointing  to  different  kinds  of 


230  CRITICISM  OF  SA  Y-HERMANN  USE          BOOK  in 

mediate  uses  that  can  be  got  from  the  thrashing  machine. 
Our  grain  when  thrashed  is  certainly  worth  more  than  it  was 
before  being  thrashed,  and  the  increment  of  value  is  a  use  we 
get  from  the  machine.  But  it  is  easy  to  see  that  this  is  not 
a  use  in  addition  to  the  material  services  of  the  machine,  but 
a  use  through  these  services ;  that  it  is  just  the  use  of  the 
machine.  Take  an  exactly  similar  case.  Suppose  some  one 
were  to  give  me  £5  0,  and  with  it  I  were  to  buy  myself  a  riding- 
horse.  No  one  would  say  that  I  had  received  two  presents 
— £50  and  a  riding-horse.  We  have  just  as  little  right  to 
conceive  of  the  mediate  use  of  the  material  services  as  a  second 
and  different  useful  service  of  the  goods.1 

This  becomes  quite  clear  in  the  case  of  perishable  goods. 
What  do  I  get  from  a  cwt.  of  coal  ?  The  heat-creating  powers 
that  it  gives  off  during  combustion,  and  which  I  pay  for  by 
the  capital  price  of  the  coal,  and,  beyond  that,  nothing — abso- 
lutely nothing.  And  what  I  call  my  "use"  of  the  coal  consists 
in  this,  that  I  put  these  material  services,  as  they  issue  from 
the  coal,  into  connection  with  some  one  object  in  which  I  wish 
to  effect  a  change  through  heat ;  the  use  lasts  as  long  as  these 
services  issue  from  the  burning  coal. 

And  when  I  lend  a  man  a  cwt.  of  coal  for  a  year,  what 
does  my  debtor  get  from  it  ?  Just  the  heat-creating  power  that 
issues  from  the  coal  during  a  couple  of  hours,  and  besides  that, 
in  this  case  also,  nothing — absolutely  nothing.  And  his  use  of 
the  coal  likewise  is  exhausted  in  the  same  number  of  hours.  It 
may  perhaps  be  asked,  Can  he  not,  then,  in  virtue  of  the  loan 
agreement,  use  the  coal  over  a  whole  year?  The  owner,  I 
admit,  could  have  nothing  to  say  against  it,  but  nature  has ; 
and  nature  says  inexorably  that  the  use  shall  be  over  in  a 
couple  of  hours.  What  then  remains  of  the  contract  is,  that 
the  debtor  is  obliged  at  the  expiry  of  the  year,  but  not  till  then, 
to  replace  the  loan  by  another  cwt.  of  coal.  But  it  is  surely 
a  most  extraordinary  confusion  of  ideas. that  the  fact  of  a  man 
having  to  give  a  cwt.  of  coal  at  the  expiry  of  a  year  in  place 
of  another  cwt.  of  coal  that  has  been  burnt,  should  be  taken 

1  A  hair-splitting  critic  might  perhaps  point  out  that  the  possession  of 
good  machines  assists  the  maker  to  secure,  say,  a  good  credit,  a  good  name, 
good  custom,  etc.  The  careful  reader  will  have  no  difficulty  in  answering  such 
objections.  To  the  same  category  belongs  the  "  use  through  exchange." 


CHAP,  vi  "NUTZUNGEN"  AND  "NUTZLEISTUNGEN"        231 

to  mean  that,  in  the  burned  cwt.  of  coal,  there  continues  to 
exist  an  objective  use  for  a  whole  year ! 

For  any  "use  of  goods,"  then,  other  than  their  natural 
material  services,  there  is  no  room  either  in  the  world  of  fact 
or  in  the  world  of  logical  ideas. 

Possibly  many  readers  will  consider  this  analysis  suffi- 
ciently convincing.  But  the  matter  is  too  important,  and  the 
antagonistic  views  too  deeply  rooted,  to  admit  of  it  resting 
here ;  and,  accordingly,  I  shall  try  to  bring  forward  still 
further  evidence  against  the  existence  of  the  use  postulated  by 
the  Use  theorists.  Of  course  the  nature  of  my  contention,  as  a 
negative  one,  does  not  allow  of  a  positive  proof.  I  cannot  put 
before  the  mind  the  non-existence  of  a  thing  in  the  same  way 
as  I  might  put  the  existence  of  a  tiling.  Nevertheless  there  is 
no  lack  of  decisive  evidence  on  the  point,  and  indeed  it  is 
offered  by  my  opponents  themselves. 

There  are  two  criterions  of  a  true  proposition :  that  it 
is  obtained  by  a  correct  process  of  reasoning,  and  that  it  leads 
to  correct  conclusions.  In  the  case  of  the  assertion  we  are 
combating — the  assertion  that  there  is  an  independent  use — 
neither  of  these  criterious  applies,  and  what  I  mean  to  pro1*  e 
now  is  this  : — 

1.  That  in  all  the  reasoning  by  which  the  Use  theorists 
thought  they  had  proved  the  existence  of  this  Use,  an  error 
or  a  misunderstanding  has  crept  in. 

2.  That  the  assumption  of  an  Independent  Use  necessarily 
leads  to  conclusions  that  are  untenable. 

After  what  has  been  already  demonstrated,  that  there  is 
no  place  for  any  objective  Use  or  Nutzv.ng  besides  the  Material 
Services,  the  proof  of  the  above  points  should  afford  the  fullest 
evidence  that  can  be  brought  forward  for  my  thesis. 


CHAPTEK  VII 

THE   INDEPENDENT    USE  :     AN    UNPROVED    ASSUMPTION 

OF  the  prominent  representatives  of  the  Use  theory,  two 
have  taken  particular  pains  to  prove  the  existence  of  an 
independent  use,  Hermann  and  Knies.  I  shall  therefore 
make  their  argument  the  chief  subject  of  critical  examination. 
Besides  these  writers,  however,  the  contribution  made  by  Say, 
the  Nestor  of  the  Use  theory,  and  by  Schaffle,  deserve  our 
consideration.  To  begin  with  the  last  two  writers,  a  few 
words  will  show  the  misunderstanding  into  which  they  have 
fallen. 

Say  ascribes  to  capital  the  rendering  of  productive  services, 
or,  as  he  often  expresses  it,  the  rendering  of  "  labour,"  and  this 
labour  is,  according  to  him,  the  foundation  of  interest.  The 
expressions  Services  and  Labour  may  perhaps  be  objected  to 
as  more  applicable  to  the  actions  of  persons  than  of  im- 
personal goods.  But  there  is  no  doubt  that  Say  is  sub- 
stantially right;  capital  does  perform  "labour."  It  appears 
to  me,  however,  just  as  much  beyond  doubt  that  the  labour 
which  capital  actually  performs  consists  in  what  I  have  called 
the  Material  Services  of  goods,  and  these  form  the  foundation 
of  gross  interest,  or,  as  the  case  may  be,  of  the  capital  value 
of  goods.  Say  appears  quietly  to  assume  that  capital,  besides 
these,  gives  off  services  distinct  from  what  we  have  defined 
as  the  material  services,  and  that  such  services  may  be  the 
separate  foundation  of  a  net  interest,  but  he  does  not  give  the 
slightest  proof  of  it — possibly  because  he  had  never  remarked 
the  chameleon-like  ambiguity  of  his  conception  of  the  services 
productifs. 

Very  much  the  same  is  true  of  Schaffle.     I  need  not  speak 


CHAP,  vii     CRITICISM:  SAY,  SCHAFFLE,  HERMANN          233 

of  the  subjective  interpretations  of  his  earlier  work,  which  are 
inconsistent  with  the  character  of  the  Use  theory,  and  which 
have  been  quietly  withdrawn  in  the  latest  edition  of  his  Bau 
und  Lehen.  In  the  later  work,  however,  he  calls  goods  "  stores 
of  useful  energies"  (iii.  p.  258),  and  he  calls  uses  "func- 
tions of  goods,"  "equivalents  of  useful  materials  in  living 
labour"  (iii.  pp.  258,  259),  "living  energies  of  impersonal 
social  substance"  (p.  313).  This  is  all  quite  correct;  but  the 
function  of  goods,  the  forthputting  of  useful  energies,  is 
nothing  else  than  our  Material  Services,  and  these,  as  we 
have  shown,  find  their  equivalent  not  in  net  interest,  as 
Schaffle  assumes,  but  in  gross  interest,  or,  in  the  case  of  perish- 
able goods,  in  their  capital  value.  Say  and  Schaffle,  therefore, 
have  misunderstood  what  it  was  they  had  to  prove,  and  their 
arguments  are  therefore  entirely  beside  the  mark. 

The  way  in  which  Hermann  arrives  at  his  independent 
"  use  "  (Nutzung)  has  quite  a  psychological  interest. 

His  first  introduction  of  the  conception  occurs  when 
speaking  of  the  use  of  durable  goods.  "  Land,  dwellings,  tools, 
books,  money,  have  durable  use  value.  Their  use,  for  the 
time  that  they  last,  may  be  conceived  of  as  a  good  in  itself, 
and  may  obtain  for  itself  an  exchange  value  which  we  call 
interest." l  Here  no  special  evidence  is  adduced  for  the 
existence  of  an  independent  use  possessing  an  independent 
value,  and  indeed  there  is  no  need  to  prove  it;  every  one 
knows  that,  as  a  fact,  the  use  of  a  piece  of  ground,  or  the 
use  of  a  house,  can  be  independently  valued  and  sold.  But 
what  must  be  emphasised  is,  that  the  thing  which  every 
reader  will  understand  in  this  connection,  and  must  understand, 
as  use,  is  the  gross  use  of  durable  goods ;  the  basis  of  rent  in 
the  case  of  land,  of  hire  in  the  case  of  houses — the  same  thing, 
in  short,  as  we  have  called  the  material  services  of  goods. 
Further,  the  independent  existence  of  this  "  use "  alongside 
of  the  good  that  renders  the  use,  is  only  explained  by  the 
fact  that  the  use  in  question  does  not  exhaust  the  good  itself. 
We  are  forced  to  admit  that  the  use  is  something  different  from 
the  good  itself  and  independent  of  it,  because  the  good  continues 
to  exist  alongside  it,  in  the  sense  that  a  portion  of  the  use  which 
it  is  capable  of  affording  remains  intact. 

1  Staatsicirthschaftliche  Untersuchungen,  second  edition,  p.  109. 


234  THE  INDEPENDENT  USE:    UNPROVED      BOOK  in 

The  second  step  that  Hermann  takes  is  to  draw  an  analogy 
between  the  use  of  durable  and  the  use  of  perishable  goods, 
and  to  try  to  show  that,  in  the  case  of  the  latter  also,  there 
is  an  independent  use  with  independent  value  existing  along- 
side the  value  of  the  good.  He  finds1  that  perishable  goods, 
through  technical  change  of  form,  preserve  their  usefulness,  and 
although  in  changed  shape,  "may  obtain  permanence  for  their  use." 
If,  e.g.  iron-ore,  coal,  and  labour  are  transformed  into  pig  iron, 
in  being  so  transformed  they  contribute  the  chemical  and 
mechanical  elements  for  a  new  usefulness  which  emerges  from 
their  combination ;  and  if,  in  such  case,  the  pig  iron  possesses 
the  exchange  value  of  the  three  goods  of  exchange  employed  in 
its  making,  then  the  former  sum  of  goods  persists,  qualitatively 
bound  up  in  the  new  usefulness,  quantitatively  added  together 
in  the  exchange  value.  "  But  if  in  this  way  goods  that  are 
perishable  are  capable  of  a  lasting  use,  then,"  continues 
Heraiann,  "  it  is  the  same  with  goods  that  change  their  form 
qualitatively  while  retaining  their  exchange  value,  as  it  is  with 
durable  goods ;  this  use  may  be  conceived  of  as  a  good  in 
itself,  as  a  use  (Nutzuwj)  which  may  itself  obtain  exchange 
value." 

In  this  Hermann  has  of  course  reached  the  goal  he  set 
before  him,  of  proving  that,  even  in  perishable  goods,  there  is 
a  use  which  exists  alongside  of  the  good  itself.  Let  us  look, 
however,  a  little  more  closely  at  the  basis  of  his  argument. 

First  of  all,  it  should  be  noticed  that  the  sole  support  of 
this  demonstration  is  a  conclusion  drawn  from  analogy.  The 
existence  of  an  independent  use  in  perishable  goods  can  in  no 
way  appeal,  like  the  use  of  durable  goods,  to  the  testimony  of 
the  senses,  and  to  practical  economic  experience.  No  one  has 
seen  an  independent  use  detaching  itself  from  a  perishable 
good.  If  we  think  that  it  is  to  be  seen  in  the  case  of  every 
loan  inasmuch  as  a  loan  is  nothing  else  than  a  transfer  of  the 
use  of  perishable  goods,  we  are  wrong ;  here  we  do  not  see  an 
independent  use ;  we  only  infer  that  there  is  one.  What  we 
see  is  simply  that  the  borrower  receives  £100  at  the  begin- 
ning of  the  year,  to  give  back  at  the  end  of  it  £105.  That  in 
this  case  £100  is  given  for  the  sum  that  was  lent,  and  £5  for 
the  use  of  the  same,  is  not  an  immediate  sensuous  observation  ; 

1  P.  llU,  r-tc.     See  the  quotation  above,  p.  194. 


CHAP,  vii  BY  HERMANN  235 

it  is  a  construction  put  by  us  on  our  observation.  At  all 
events,  where  the  existence  of  an  independent  use  in  perishable 
goods  is  in  question,  no  appeal  can  be  made  to  the  case  of 
the  loan ;  for  so  long  as  the  existence  of  that  independent  use 
is  questioned,  of  course  the  justification  of  interpreting  the  loan 
as  a  transfer  of  use  must  also  be  questioned,  and  to  try  to 
prove  the  one  by  the  other  is  obviously  begging  the  question. 

If,  therefore,  the  "  independent  use  of  perishable  goods " 
is  to  be  anything  more  than  an  unproved  assertion,  it  can  only 
be  through  the  force  of  the  argument  from  analogy  that  Her- 
mann has  introduced, — not  indeed  in  form  but  in  substance, — 
in  the  passage  just  quoted.  The  argument  there  is  as  follows  : 
Durable  goods  are  capable,  as  every  one  knows,  of  affording 
a  use  independent  of  the  goods  themselves ;  if  we  look  closely 
we  can  see  that  perishable  goods,  like  durable  goods,  allow  of 
a  durable  use ;  consequently  perishable  goods  are,  and  must 
be,  capable  of  affording  a  use  independent  of  the  goods 
themselves. 

The  conclusion  thus  drawn  is  false,  for,  as  I  shall  prove 
immediately,  the  analogy  fails  just  at  the  critical  point.  I 
admit  at  once  that  perishable  goods,  through  technical  change 
of  form,  really  become  capable  of  durable  use.  I  grant  that 
coal  and  iron  ore  are  first  used  in  the  production  of  iron.  I 
grant  that  the  use  which  the  iron  then  affords  is  nothing  but 
a  further  result  of  the  powers  of  those  first  things ;  which  first 
things  are  therefore  used  in  the  shape  of  iron  for  the  second 
time,  and  again  in  the  nail  that  is  made  out  of  the  iron  for 
the  third  time,  and  in  the  house  which  the  nail  helps  to  hold 
together  for  the  fourth  time ;  that  is  to  say,  are  used  in  a 
lasting  way.  Only  it  must  be  carefully  noted  that  the 
durableness  in  this  case  rests  on  quite  another  ground,  and 
possesses  quite  another  character  from  that  of  durable  goods 
properly  so  called.  The  durable  gooJs  are  used  over  and  over 
again  in  this  way  that,  in  each  act  of  use,  only  a  part  of  their 
useful  content  is  exhausted,  while  another  part  is  left  un- 
disturbed for  future  acts  of  use.  But  the  perish'able  goods  are 
used  over  and  over  again  by  exhausting  the  whole  of  them 
over  and  over  again — by  exhausting  the  whole  useful  content 
of  that  form  which  the  goods  have  at  the  time ;  but  since  this 
useful  content  then  takes  on  a  new  shape,  the  exhaustive  use 


236  THE  INDEPENDENT  USE:    UNPROVED      BOOK  in 

is  repeated  in  it  again.  The  two  kinds  of  use  are  as  distinct 
as  the  continuous  outflow  of  water  from  a  reservoir  is  distinct 
from  the  continuous  flow  of  water  from  one  vessel  to  another 
and  back  again ;  or,  to  take  an  example  from  the  economical 
world,  they  are  as  distinct  as  the  obtaining  of  successive  pro- 
ceeds from  selling  land  piece  by  piece  is  distinct  from  the 
obtaining  of  successive  proceeds  by  spending  the  price  of  the 
whole  piece  of  ground  in  a  new  purchase,  and  selling  this  new 
purchase  over  again. 

A  few  words  more  will  bring  out  more  sharply  the  halting 
nature  of  Hermann's  analogy. 

Between  the  "  durable  use  "  which  Hermann  points  out  in 
perishable  goods,  and  durable  goods  proper,  there  is  really  a 
perfect  analogy,  but  Hermann,  instead  of  drawing  this  parallel, 
has  drawn  another.  We  have  here  to  do  with  one  of  those 
points  in  which  the  neglect  that  our  science  has  been  guilty  of 
in  regard  to  the  conception  of  the  "  use  of  goods  "  has  revenged 
itself  on  the  science.  If  Hermann  had  more  accurately 
examined  the  conception  of  use  (Gebrauch)  he  would  have 
perceived  that  under  that  name  two  very  distinct  things  are 
coupled  together— things  which,  for  want  of  a  better  expression, 
I  shall  distinguish  as  the  immediate  and  mediate  use  of  goods. 
The  immediate  use  (the  only  one  which  perhaps  has  any 
claim  to  the  name  of  "  use  ")  consists  in  the  receiving  of  the 
material  services  of  a  good.  The  mediate  use  (which  perhaps 
it  would  be  more  proper  not  to  call  "  use "  at  all)  consists  in 
receiving  the  material  services  of  those  other  goods  that  only 
come  into  existence  through  the  material  services  of  the  first 
"  used "  good ;  then  again  the  services  of  the  goods  that 
proceed  from  the  material  services  of  these  latter  goods,  and 
so  on.  In  other  words,  the  "  mediate  use  "  consists  in  receiving 
the  more  distant  members  of  that  chain  of  causes  and  effects 
which  takes  its  beginning  in  the  first  immediate  use — members 
that  possibly  go  on  evolving  to  the  crack  of  doom. 

Now  I  should  not  like  to  say  that  it  is  exactly  false  to 
call  the  use  of  these  distant  results  of  a  good  a  use  of  the  good 
itself;  in  any  case  the  two  kinds  of  use  have  an  entirely 
different  character.  If  any  one  likes  to  call  my  riding  on  a 
horse  a  use  of  the  hay  that  my  horse  has  eaten,  it  is  manifest, 
at  all  events,  that  this  is  an  entirely  different  kind  of  use  from 


CHAP,  vii  BY  HERMANN  237 

the  immediate  use  of  the  hay,  and  in  some  essential  respects  is 
subject  to  totally  different  conditions. 

If  we  wish  therefore  to  draw  an  analogy  between  the 
use  of  two  goods,  or  of  two  kinds  of  goods,  we  must  evidently 
confine  ourselves  strictly  to  similar  kinds  of  use.  We  may 
compare  the  immediate  use  of  one  good  with  the  immediate 
use  of  another,  or  the  mediate  use  of  one  good  with  the 
mediate  use  of  another;  but  not  the  immediate  use  of  one 
good  with  the  -mediate  use  of  another, — particularly  if  we  wish 
to  deduce  further  scientific  conclusions  from  the  comparison. 
It  is  here  that  Hermann  has  gone  wrong.  Durable  goods 
as  well  as  perishable  goods  permit  of  two  kinds  of  use.  Coal, 
a  perishable  good,  has  its  immediate  use  in  burning;  its 
mediate  use,  as  Hermann  has  quite  correctly  pointed  out,  in 
the  use  of  the  iron  which  is  smelted  by  its  aid.  But  this  is 
the  case  also  with  every  durable  good.  E.g.  every  spinning 
frame,  besides  its  immediate  use  which  consists  in  the  pro- 
duction of  yarn,  has  also  a  mediate  use  which  consists  in  the  use 
of  the  yarn  for  making  cloth,  in  the  use  of  cloth  for  making 
clothing,  in  the  use  of  clothing  itself,  and  so  on.  Now  the 
proper  comparison  would  obviously  be  between  the  immediate 
use  of  the  durable  goods  and  the  momentary  use  of  the  perish- 
able goods,1  or  between  the  durable  mediate  use  of  the 
perishable  and  the  similarly  durable  mediate  use  of  the  durable 
goods.  But  Hermann  has  made  a  mistake  in  the  parallels ; 
he  has  drawn  his  analogy  where  there  is  really  none — 
between  the  immediate  use  of  durable  goods  and  the  mediate 
use  of  the  perishable ;  misled  by  the  circumstance  that  both 
kinds  of  use  are  "  durable,"  and  overlooking  the  fact  that,  in 
the  two  cases,  this  "  durableness "  rests  on  grounds  that  are 
utterly  and  entirely  distinct. 

This  much,  I  trust,  has  at  all  events  been  made  clear  by 
the  present  analysis,  that  the  analogy  whioh  Hermann  draws 
between  the  "  durable  "  use  of  durable  and  of  perishable  goods 
is  not  complete.  But  beyond  this  it  is  easy  to  show  that  the 
dissimilarity  comes  in  exactly  at  the  critical  point.  Why  is 

1  To  prove  the  appropriateness  of  this  analogy  we  need  only  picture  to  our- 
selves the  graduation  of  transition  from  the  durable  goods, — such  as  land,  precious 
stones, — down  through  always  less  durable  goods, — as  tools,  furniture,  clothes, 
linen,  tapers,  paper  collars,  and  so  on, — till  we  come  to  the  entirely  perishable 
goods — matches,  food,  drink,  etc. 


238  THE  INDEPENDENT  USE:    UNPROVED      BOOK  in 

it  that  we  can  see  in  durable  goods  an  independent  use  with 
an   independent  value   by  the  side  of  the  good   itself?     Not 
simply  because  the  use  is  a  durable  one,  but  because  the  use 
that  has  already  been  made  of  the  good  leaves  something  over 
of  the  good,  and  of  the  value  of  the  good;  because  in  that 
portion  of  the  immediate  useful  content  that  has  been  released 
and   in   the   portion   that   is   not  yet   released  we  Jiave   two 
different   things  that   exist   beside  each   other,  each  of  them 
having  simultaneously  an  economic  value  of  its  own.     But  in 
the  case  of  perishable  goods  the  exact  opposite  of  all   this  is 
the  case.     Here  the  use  of  the  moment  entirely  exhausts  the 
useful  content  of  the  form  which  the  good  had  at  the  moment, 
and  the  value  of  this  use  is  always  identical  with  the  entire 
value  of  the  good   itself.     At  no  one  moment  have  we  two 
valuable  things    alongside   of  each   other ;  only  one  and  the 
same  valuable  thing  two  times  in  succession.     When  we  use 
coal  and  iron  ore  in  making  iron,  we  consume  them ;  for  this 
use  we  pay  the  entire  capital  value  of  these  goods,  and  'not  one 
atom  of  them   is  saved,  or   continues  to   exist   and  have   an 
independent  value  beside  and  after  this  consumption.     And  it 
is  just   the  same  when   the  iron  is  consumed   again  for   the 
making  of  nails.      It  is  consumed ;  the  whole  capital  value  of 
the  iron  is  paid  for  it ;  and  not  the  smallest  fragment  of  it 
continues  to  exist  alongside.     There  never  are  in  one  single 
moment   the  thing  and  its  use   beside   each   other;  only  the 
things  "  coal  and  iron-ore,"  "  iron,"  and  "  nails,"  after  one,  an- 
other, and  through  their  successive  use.     But  such  being  the 
case,  it  can  be  shown  us  neither  by  analogy  nor  in  any  other 
way  how  the  "  use "  of  a  perishable  article  can  attain  to  an 
existence  and  to  a  value  independent  of  the  article  itself. 

The  fact  is,  Hermann's  analogical  reasoning  is  no  more 
correct  than  an  argument  like  the  following  would  be.  From 
a  great  water  tank  in  an  hour's  time  I  can  draw  off  a  gallon  of 
water  every  second.  Each  of  the  3600  gallons  thus  poured 
out  has  an  independent  existence  of  itself,  and  is  a  perfectly 
distinct  thing ;  distinct  from  the  water  -that  has  been  drawn 
and  from  the  water  that  remains  in  the  tank.  But  suppose  I 
have  only  one  gallon  of  water,  and  go  on  pouring  this  from 
one  vessel  in  to  another ;  as  in  the  former  case,  a  gallon  of 
water  is  poured  out  every  second  for  the  space  of  an  hour. 


CHAP,  vii  BY  HERMANN  AND  KNIES  239 

Therefore  in  this  case  also  it  must  be  3600  independent 
gallons  that  are  poured  out  from  our  vessels ! 

But,  lastly,  Hermann  takes  a  third  step,  and  resolves  the 
use  of  durable  goods  into  tw<-  elements ;  one  element  that 
alone  deserves  the  name  " use "  (Gelrauch  or  Nutzung}  and  a 
second  element  which  he  calls  "  using  up "  (Abnutzung).  I 
must  confess  that  this  last  step  reminds  me  very  forcibly  of 
the  old  anecdote  of  Munchausen,  in  which  Munchausen  lets 
himself  down  by  a  rope  from  the  moon  by  always  cutting  the 
rope  above  his  head,  and  knotting  it  again  below  him.  Very 
much  in  the  same  way  Hermann  has  at  first  treated  of  the 
whole  (gross)  use  of  durable  goods  as  use  (Nutzuiiy),  till  such 
time  as  he  has  based  a  conclusion  from  analogy  on  it,  and 
through  it  has  demonstrated  a  use  in  perishable  goods  also. 
No  sooner  has  he  got  this  length  than  he  tears  his  primary 
conception  of  use  in  pieces,  nowise  disturbed  by  the  fact  that 
with  it  he  destroys  the  peg  to  which  he  has  attached  his  later 
conception  of  independent  use,  and  that  this  conception  now 
hangs  in  the  air. 

I  shall  return  later  on  to  the  further  inconsistencies  involved 
in  this.  In  the  meantime  I  content  myself  with  saying 
that  the  contention  which  looks  so  fascinating  at  the  first 
glance  proves  on  closer  examination  to  have  no  better  support 
than  a  false  analogy. 

It  would  be  an  obvious  omission  in  my  criticism  if  it 
were  not  to  include  the  thorough  and  conscientious  efforts  of 
Knies  on  this  subject.  The  work  of  this  distinguished 
thinker  has  a  twofold  similarity  to  Hermann's  doctrine ;  like 
Hermann,  his  arguments  are  remarkably  convincing  at  first 
sight,  and  this  power  they  owe  to  an  effective  employment  of 
analogies — analogies,  however,  which,  like  those  of  Hermann, 
I  feel  bound  to  declare  false. 

Knies  chances  on  our  subject  when  discussing  the  eco- 
nomical nature  of  the  loan.  He  agrees  with  the  view  that 
the  essence  of  the  loan  consists  in  a  transfer  of  the  use  of  the 
sum  lent ;  and  when  trying,  with  his  usual  carefulness,  to  find 
reasons  for  this  conception,  he  is  compelled  to  go  into  the 
question  of  the  existence  or  non-existence  of  an  independent 
use  in  perishable  goods. 


240  THE  INDEPENDENT  USE:    UNPROVED      BOOK  in 

In  some  introductory  considerations  he  starts  from  the  idea 
that  there  are  economical  "  transfers "  which  do  not  coincide 
with  the  transfer  of  the  rights  of  property.  The  transferences 
of  the  simple  use  of  goods  seem  to  be  of  this  sort.  He  goes 
on  to  note  the  distinction  between  perishable  and  non-perish- 
able goods,  and  then  turns  to  a  detailed  consideration  of 
the  transfer  of  the  uses  of  non-perishable  goods — a  considera- 
tion which,  with  him  as  with  Hermann,  is  made  to  serve  as 
bridge  to  explain  the  delicate  phenomena  in  the  use  of 
perishable  goods.  Here  he  puts  down  the  distinction  that 
must  be  drawn  between  the  Nutzung  as  "  that  Gebrauch  of 
a  good  which  lasts  over  a  period  of  time,  and  is  measured 
by  moments  of  time,"  and  the  good  itself  as  the  "  bearer  of  the 
Nutzung."  The  economical  principle  of  the  transfers  in 
question  is  that  the  intention  is  to  transfer  a  Nutzung,  but 
not  the  bearer  of  a  Nutzung.  But  the  nature  of  things 
necessitates  that  the  transfer  of  the  Nutzungen  of  goods 
always  involves  certain  concessions  in  regard  to  the  bearer  of 
the  Nutzung.  The  owner  of  a  leased  piece  of  ground,  e.g.  must, 
from  physical  considerations,  deliver  it  over  to  the  lessee,  if 
the  lessee  is  to  get  the  use  of  it.  The  amount  of  these  con- 
cessions, and  the  inevitable  risk  of  loss  as  well  as  of  deteriora- 
tion of  the  good  which  bears  the  use,  vary  just  as  things 
vary,  and  as  the  particular  circumstances  of  the  individual 
case  vary.  In  hire,  for  instance,  a  certain  amount  of  deteriora- 
tion, and  the  consent  of  the  owner  to  this  deterioration,  are 
quite  necessary.1 

Then,  after  explaining  the  meaning  of  the  legal  categories 
of  fungible  and  non-fungible  goods,  Knies  puts  the  following 
question  (p.  71),  Is  it  not  then  actually  possible,  must  it 
not,  indeed,  be  understood  as  the  intention  of  a  compact,  that 
the  use  (Nutzung}  of  a  fungible,  and  even  of  a  perishable  good 
should  be  transferred  ? 

In  this  sentence  Knies  implicitly  asks  whether  there  is 
not  an  independent  use  of  perishable  goods.  He  answers  the 
question  by  putting  the  following  case. 

"  A  cwt.  of  corn  is  a  fungible  and  perishable  good  of  this 
kind.  The  owner,  in  certain  circumstances,  cannot  part  with 
this  cwt,  and  is  not  inclined  to  exchange  it,  or  sell  it, — perhaps 

1  Oeld,  p.  59,  etc. 


CHAP,  vii  BY  KNIES  241 

because  he  is  obliged  to  consume  (verbrauchen),  or  wishes  to 
consume  it  himself  at  the  end  of  six  months.  But  up  till  that 
date  he  does  not  need  it.  This  being  so  he  might  of  course  very 
well  allow  himself  to  transfer  the  use  (Gebrauch)  of  it  to  some  one 
else  for  the  next  six  months,  if  only  at  the  expiry  of  that  time  he 
could  get  back  his  good.  Say,  then,  that  there  is  another  man 
who  desires  the  corn,  but  cannot  barter  for  it  or  buy  it.  He 
will  point  out  that  he  could  not  get  any  use  (Nutzung)  from 
the  corn,  as  a  perishable  good,  unless  through  the  consumption 
( Verbrauch)  of  the  corn  itself,  say  as  seed ;  but  that  he  would 
be  able  to  replace  another  cwt.  from  the  harvest  obtained  by 
means  of  this  use  (Nutzung)  transferred  to  him.  The  owner 
may  find  this  perfectly  satisfactory  for  his  economical  interests, 
since  the  transaction  here  refers  to  a  fungible  good. 

"  In  this  statement  there  is  not  a  particle  of  an  idea  con- 
taining anything  at  all  impossible,  far-fetched,  or  artificial. 
But  such  a  transaction  taken  by  itself — that  is,  the  transfer  of 
a  cwt.  of  corn  under  the  condition  of  the  borrower  giving  back 
a  cwt.  of  corn  at  the  end  of  six  months — belongs  undoubtedly  to 
those  things  that  are  called  loans.  ...  In  conformity  with  this 
we  put  the  loan  in  the  category  of  transfers  of  a  Use  (Nutzung) — 
that  is,  of  the  use  (Nutzung}  of  fungible  goods  which  pass  over 
into  the  control  and  for  the  use  of  the  owner,  and  are  replaced 
by  a  similar  quantity.  Naturally,  in  the  case  of  the  loan,  it  is 
of  the  greatest  consequence  to  understand  clearly  that,  how- 
ever liberal  the  concessions  may  Le  as  'regards  the  'bearer  of 
the  use,  still  it  is  not  in  the  concessions  that  the  principle  of 
the  transaction  lies.  Rather  are  these  concessions  always 
determined  in  conformity  with  the  overruling  necessity  of  obtain- 
ing the  use  at  the  time.  And  just  on  this  account,  in  the.  case 
of  a  perishable  good,  they  are  extended  so  far  as  to  give  the 
owner  the  power  of  consumption,  while  all  the  same  there  is 
even  here  no  other  principle  in  the  matter  than  the  trans- 
fer of  a  use.  In  the  loan,  therefore,  the  transfer  of  the  right 
of  property  is  unavoidable,  but  still  only  as  an  accompanying 
circumstance." 

I  admit  at  once  that  these  analyses  are  calculated  to  make 
an  entirely  convincing  impression  on  one  who  does  not  look  very 
closely  into  them.  Not  only  has  Knies  shown  unusual  skill 
in  drawing  the  analogy  which  the  old  opponents  of  the  can- 

E 


242  THE  INDEPENDENT  USE:    UNPROVED      BOOK  m 

onists  used  to  draw,  between  lease  and  hire  on  the  one  side 
and  the  loan  on  the  other,  but  he  has  enriched  it  by  a  new  and 
effective  feature.  For  by  the  allusion  he  makes  to  the  un- 
avoidable concessions,  in  regard  to  the  "  bearer  of  the  use," 
that  are  made  in  the  case  of  all  transfers  of  use,  he  has  managed 
to  change  the  element  that  seemed  completely  to  destroy  the 
analogy  between  the  loan  and  the  hire  (the  complete  transfer 
of  the  property  in  the  goods  lent)  into  a  further  support  of  it. 

If,  however,  we  do  not  allow  ourselves  to  be  carried  away 
by  these  brilliant  analogies,  but  begin  to  reflect  critically 
on  them,  we  shall  easily  see  that  their  admissibility,  and 
witli  it  the  strength  of  the  proof,  depends  on  an  affirmative 
answer  being  given  to  a  previous  question.  The  previous 
question  is,  Whether  in  perishable  goods  there  is  any  independ- 
ent use  to  transfer  by  way  of  loan  ?  And  we  shall  look  more 
exactly  at  the  kind  of  evidence  that  Knies  specially  brings  for- 
ward as  regards  this  question — a  question  that  is  the  key  to 
his  whole  theory  of  the  loan. 

At  this  point  I  think  we  shall  make  the  astonishing  dis- 
covery that  Knies  has  not  said  a  word  in  proof  of  the  existence, 
or  even  the  conceivableness  of  an  independent  use,  but  has 
evaded  the  great  difficulty  of  his  theory  by  using  the  word 
Nutzung  in  a  double  sense. 

I  shall  try  to  show  how  he  does  so.  On  p.  61  he  himself 
identifies  the  Nutzung  of  a  good  with  its  G-ebroMch.  He  knows 
besides  (p.  61  again)  that  in  perishable  goods  there  is  no 
other  possible  Gebrauch  but  a  Verbrauch.  He  must,  therefore, 
also  know  that  in  perishable  goods  the  Nutzung  is  identical 
with  the  Ver'brauck.  But,  on  the  other  hand,  he  uses  the  word 
Nutzung  in  stating  the  problem,  and  then  in  the  concluding 
sentence — "  In  conformity  with  this  we  put  the  loan  in  the 
category  of  transfers  of  a  Nutzung  " — he  evidently  uses  the  word 
in  a  sense  that  is  not  identical  with  Vcrlrauch,  but  means  a  dur- 
able Nutzung.  In  the  course  of  the  passage  quoted  he  mixes 
up  step  by  step  the  Nutzung  in  the  first  sense  with  the  Nut- 
zung in  the  second  sense,  till  he  arrives  at  this  concluding 
sentence,  where,  from  a  number  of  propositions  that  are  only 
correct  if  they  refer  to  Nutzung  in  the  first  sense,  is  drawn  the 
conclusion  that  there  is  a  Nutzung  in  the  second  sense. 

The  first  proposition  runs  :  "  The  owner,  in  certain  circum- 


CHAP,  vii  BY  KNIES  243 

stances,  cannot  part  with  this  cwt.,  and  is  not  inclined  to  ex- 
change it,  or  sell  it, — perhaps  because  he  is  obliged  to  consume 
(verlrauchcn),  or  wishes  to  consume  it  himself  at  the  end  of 
six  months.  But  up  till  that  date  he  does  not  need  it." 

In  this  proposition  the  kind  of  use  that  is  thought  of, 
and,  in  the  nature  of  things,  the  only  kind  that  can  be  thought 
of,  is  quite  correctly  indicated  as  the  Vcrbrauch  of  the  good. 
Then  he  continues  :  "  He  might  of  course  very  well  allow  him- 
self to  transfer  the  Gebraucli  of  it  to  some  one  else  for  the  next 
six  months,  if  only  at  the  expiry  of  that  time  he  could  get 
back  his  good." 

Here  begins  the  ambiguity.  What  is  the  meaning  of 
Gebrauch  here  ?  Does  it  mean  Vcrbrauch  ?  Or  does  it  mean 
a  kind  of  Nutzung  that  lasts  over  a  period  of  six  months  ? 
Obviously  the  Gebrauch  is  conceivable  only  as  the  Vcrbrauch, 
but  the  words  "  Gebrauck  for  the  next  six  months  "  are  calcu- 
lated to  suggest  a  durable  Gebrauch,  and  with  this  begins  the 
quid  pro  quo. 

Now  follows  the  third  proposition  :  "  Say  then  that  there 
another  man  who  desires  the  corn,  but  cannot  barter  for  it 
or  buy  it.  He  will  point  out  that  he  could  not  get  any  Nut- 
zung from  the  corn,  as  a  perishable  good,  unless  through  the 
Verbraucli  of  the  corn  itself,  say  as  seed ;  but  that  he  would 
be  able  to  replace  another  cwt.  from  the  harvest  obtained  by 
means  of  this  Nutzung  transferred  to  him.  The  owner  ma}' 
find  this  perfectly  satisfactory  for  his  economical  interests,  since 
the  transaction  here  refers  to  a  fungible  good." 

This  proposition  contains  the  crowning  confusion.  Kaies 
makes  the  suitor  for  the  loan  point  out  distinctly  that  a 
Nutzung  of  perishable  goods  cannot  be  anything  else  than 
identical  with  their  Vcrbrauch,  but  in  the  same  breath  he 
uses  and  places  the  words  Nutzung  and  Vcrbrauck  in  such  a 
way  that  the  two  conceptions  are  kept  separate  from  one 
another,  and  appear  not  to  be  identical.  He  thus  smuggles 
into  his  argument — and  the  oftener  he  does  it  the  less  likely  is 
it  to  be  noticed — the  suggestion  of  a  durable  Nutzung  in  perish- 
able goods.  Thus  when  it  is  said  that  the  harvest  is  "  obtained 
by  means  of  this  Nutzung  transferred,"  one  might  quite  well 
imagine  that  the  Nutzgebrauch  of  the  seed  is  here  again  only 
the  same  thing  as  the  Nutzvcrbrauch  which  obtained  the 


244  THE  INDEPENDENT  USE:    UNPROVED      BOOK  in 

harvest.  But,  thanks  to  the  agreement  of  the  "  Nutzung  trans- 
ferred "  with  the  "  transfer  of  the  Nutzung"  which  we  have 
been  constantly  hearing  about,  and  which  had  meant  the 
opposite  of  the  " transfers  of  the  bearer  of  the  Nutzuny"  we 
are  forced  involuntarily  to  think  of  a  durable  Nutzuny  after 
the  analogy  of  the  Nutzung  of  durable  goods.  Any  scruple 
we  may  have  about  the  conceivableness  of  such  a  Nutzn.ng  is 
the  more  easily  silenced  that  we  are  told,  at  the  same  time, 
that  through  it  the  harvest  is  obtained  —  that  is,  that 
something  very  real  indeed  is  accomplished — a  proof  of  the 
existence  of  a  Nutzuny  which  the  reader,  once  caught  in  the 
tangle,  naturally  puts  to  the  account  of  the  "  durable  Nutzuny."' 

And  now  from  this  confused  argument  Knies  draws  hi? 
conclusions.  After  saying  that  "  in  this  statement  there  is 
not  a  particle  of  an  idea  containing  anything  at  all  impos- 
sible, far-fetched,  or  artificial" — which,  indeed,  if  we  grant  his 
assumptions,  is  quite  correct,  but  admits  of  no  conclusion 
in  favour  of  his  thesis  if,  for  the  words  Gcbrauch  or  Nntzung. 
we  substitute  in  each  ambiguous  passage  the  word  Nutzvcr- 
Irauch — he  draws  the  conclusion,  Therefore  the  loan  belongs 
to  the  class  of  transfers  of  a  simple  Nutzuny. 

This  conclusion  is  simply  fallacious.  The  thing  he  had  to 
prove  has  not  been  proved.  Nay,  more ;  the  thing  that  was 
to  be  proved  is  introduced  quietly  in  the  deduction,  as  some- 
thing that  had  been  assumed  ;  the  Nutzung,  in  the  peculiar  sense 
attached  to  it,  is  spoken  of  as  if  it  were  a  familiar  fact,  with- 
out one  word  being  said  in  support  of  what  was  to  be  proved, 
the  existence  of  such  a  Nutzung.  But  the  difficulty  of 
discovering  this  fundamental  flaw  in  the  argument  is  very 
much  aggravated  by  two  circumstances :  first,  that  the  false 
Nutzuny  sails  under  the  flag  of  the  true  Nutzung,  and  we  for- 
get to  protest  against  the  existence  of  the  so-called  Nutzung, 
because,  thanks  to  the  dialectical  skill  of  the  author,  we  do  not 
keep  it  separate  and  distinct  from  the  true  Nutzung,  which 
unquestionably  does  exist ;  and  second,  through  the  very  naiveti- 
of  the  suggestion.  That  is  to  say,  without  in  point  of  fact  once 
entering  on  the  problem  whether  a  durable  Nutzung  in  perish- 
able goods  is  conceivable  or  not,  Knies  represents  the  owner 
and  the  suitor  for  the  loan  as  negotiating  over  the  transfer  of 
the  Nutzung  in  a  tone  of  certainty,  which  implies  that  the 


CHAP,  vn  BY  ANY  USE   THEORIST  245 

existence  of  the  Nutzuny  is  beyond  question, — and  the  reader 
almost  involuntarily  shares  in  the  certainty ! 

If  we  look  back  and  compare  the  efforts  that  the  writers 
of  the  Say -Hermann  school  have  made  to  prove  their 
peculiar  Use  of  capital,  we  shall  perceive,  among  all  their 
difference  of  detail,  a  substantial  agreement  which  is  very 
suggestive. 

All  the  authors  of  that  school,  from  Say  to  Knies,  when 
they  begin  to  speak  of  the  use  of  capital,  first  of  all  allude  to 
the  material  services  which  capital  actually  renders.  Then 
under  cover  of  this  they  get  the  reader  to  admit  that  the  "  use 
of  capital "  does  really  exist ;  that  it  exists  as  an  independent 
economic  element,  and  even  possesses  an  independent  eco- 
nomical value.  That  this  independence  is  not  the  independ- 
ence of  a  second  whole  beside  the  good  itself,  but  only  that 
of  an  independent  and  separable  part  of  the  content  of  the 
good,  the  rendering  of  the  service  being  always  attended  by  a 
diminution  in  the  value  of  the  good  itself;  and  that  the 
remuneration  of  this  service  is  a  gross  interest — all  this  is 
kept  in  the  background. 

But  no  sooner  have  they  got  the  length  of  recognising 
the  "  independent  use  of  capital "  than  they  substitute,  for  the 
true  material  services  of  capital  (under  cover  of  which  they 
arrived  at  the  independent  use),  the  imaginary  use  of  their  own 
making,  impute  to  it  an  independent  value  outside  the  full 
value  of  the  good,  and  end  by  drawing  away  the  true  use  that 
had  served  as  a  ladder  for  the  false.  This  way  of  working  is 
seen  in  Say  and  Schaffle  only  in  a  hasty  and  abbreviated  form, 
in  quietly  changing  what  is  the  substance  of  gross  interest 
into  what  is  the  substance  of  net  interest;  but  Hermann 
and  Knies  work  it  out  in  complete  detail  before  our  eyes. 
Blunders  like  these  show  us  how  urgent  is  the  necessity  that 
the  "  revision  of  fundamental  conceptions,"  so  much  desiderated, 
should  even  at  this  late  date  be  applied  to  the  apparently 
insignificant  conception  of  the  Use  of  goods.  I  have  tried  to 
do  my  part  in  giving  a  first  contribution  to  it,  and  I  believe 
that  in  the  present  chapter  I  have  proved  my  first  pro- 
position,— that  in  all  the  reasoning  by  which  the  Use  theorists 
of  the  Say-Hermann  school  thought  they  had  proved  the 


246  THE  INDEPENDENT  USE:    UNPROVED      BOOK  in 

existence  of  the  asserted  use,  an  error  or  a  misunderstanding 
has  crept  in. 

Not  only,  however,  is  the  assumption  of  that  independent 
use  absolutely  unproved,  but,  as  I  mean  to  show  in  the  next 
chapter,  it  leads  necessarily  to  internal  contradictions  and 
untenable  conclusions. 


CHAPTEE    VIII 

THE    INDEPENDENT    USE  :     ITS    UNTENABLE    CONCLUSIONS 

IT  is  customary  among  the  Use  theorists,  and  even  among 
others,1  to  make  a  distinction  between  a  gross  Nutzung,  which 
is  the  basis  of  gross  interest  (rent  or  hire),  and  a  net  Nutzung, 
which  is  the  basis  of  net  interest.  It  is  singular  enough  that 
we  have  all  been  in  the  habit  of  innocently  repeating  this 
distinction,  without  it  ever  occurring  to  any  one  that  there 
was  in  it  an  irreconcilable  contradiction. 

If  we  are  to  believe  the  unanimous  assurance  of  our 
theorists,  Nutzung  should  be  taken  as  synonymous  with 
Gebrauch  in  the  objective  sense  of  the  word.  Now,  if  there 
is  a  net  and  a  gross  Nutzung,  are  we  to  understand  that  there 
are  two  Nutzungen,  two  Gebrauche  of-  the  same  good — not,  it 
must  be  remembered,  two  successive  or  two  alternative  kinds 
of  Gebrauch,  but  two  simultaneous  cumulative  Gebrauche  that 

1  It  is  as  well  to  put  it  in  so  many  words  that,  in  this  polemic  on  the  concep- 
tion of  Use,  I  am  in  opposition,  not  only  to  the  Use  theorists  properly  so  called, 
but  to  almost  the  entire  literature  of  political  economy.  The  conception  of 
the  Use  of  capital  which  I  dispute  is  that  commonly  accepted  since  the 
day  of  Salmasius.  Even  writers  who  explain  the  origin  of  interest  by  quite 
different  theories  —  e.g.  Roscher,  by  the  Productivity  theory ;  or  Senior, 
by  the  Abstinence  theory ;  or  Courcelle  -  Seneuil  or  Wagner,  by  the  Labour 
theory — always  conceive  of  loan  interest  as  a  remuneration  for  a  transferred  Use 
or  Usage  of  capital,  and  occasionally  they  conceive  even  of  natural  interest  as 
a  result  of  the  same  use  or  usage.  The  only  distinction  between  them  and  the 
Use  theorists  properly  so  called  is  this,  that  the  former  employ  these  expressions 
naively,  using  terms  that  have  become  popular,  and  do  not  trouble  them- 
selves as  to  the  premises  and  conclusions  of  the  Use  conception,  —  which 
sometimes  entirely  contradict  the  rest  of  their  interest  theory  ;  while  the 
Use  theorists  build  their  distinctive  theory  on  the  conclusions  of  that  concep- 
tion. The  almost  universal  acceptance  of  Nthe  error  I  am  opposing  may  further 
justify  my  prolixity. 


248  THE  INDEPENDENT  USE:    UNTENABLE     BOOK  in 

are  obtained  beside  or  in  each  other  in  every  transaction, 
however  elementary,  where  a  Gebrauch  enters  ? 

That  one  good  gives  off  two  uses,  the  one  after  the  other, 
can  be  understood.  That  one  good  permits  of  two  kinds  of 
use  alternatively — as  wood  for  building  and  for  burning — can 
also  be  understood.  It  is  quite  conceivable  even  that  one 
good  should  permit  of  two  kinds  of  use  simultaneously,  the  one 
beside  the  other,  and  that  these  furnish  two  distinct  utilities ; 
e.g.  that  a  picturesque  rustic  bridge  should  at  once  serve  as 
medium  of  traffic,  and  as  object  of  aesthetic  satisfaction. 

But  when  I  hire  a  house  or  a  lodging,  and  make  use  of  it  for 
purposes  of  habitation,  to  imagine  that  in  one  and  the  same 
series  of  acts  of  use  I  am  receiving  and  profiting  by  two 
different  uses,  a  wider  one  for  which  I  pay  the  whole  hire, 
aud  a  narrower  one  for  which  I  pay  the  net  interest  contained 
in  the  hire ;  or  to  imagine  that  in  every  stroke  of  the  pen  that 
I  put  om  paper,  in  every  look  that  I  throw  on  a  picture,  in 
every  cut  that  I  make  with  my  knife,  in  short,  in  every  use, 
however  simple,  that  I  get  from  a  good,  I  get  always  two  uses, 
in  or  beside  each  other ; — this  is  in  contradiction  alike  with  the 
nature  of  things  and  with  healthy  common  sense.  If  I  look 
at  a  picture,  or  live  in  a  house,  I  make  one  use  of  the  picture 
or  house ;  and  if  in  this  connection  I  speak  of  two  things, 
whether  Gebrauch  or  Nutzung,  I  am  giving  a  wrong  name  to 
one  of  them. 

To  which  of  them  do  I  give  the  wrong  name  ? 

On  this  point,  again,  the  current  view  is  a  very  strange  one. 
The  theorists  we  are  speaking  of  certainly  appear  to  have  felt 
in  some  degree  the  impropriety  of  assuming  two  uses  to  exist 
alongside  each  other.  For  although  as  a  rule  they  employ  the 
word  Nutzung  to  express  two  things,  they  sometimes  make  an 
attempt  to  put  one  of  them  out  of  sight.  Indeed,  the  gross 
Nutzung  is  eliminated  when  it  is  split  up  into  net  Nutzung  plus 
partial  replacement  of  capital.  Thus  Koscher,  whom  we  are 
justified  in  quoting  as  the  representative  of  the  current  opinion, 
says : l  "  The  Nutzung  of  a  capital  must  not  be  confounded 
with  its  partial  replacement.  In  house  rent,  for  instance, 
over  and  above  the  payment  for  the  Gebrauch  of  the  house, 
there  must  be  contained  a  sufficient  sum  for  repairs,  indeed 

1  Grundlagen,  tenth  edition,  p.  401,  etc. 


CHAP,  viir  GKOSS  AND  NET  USE  249 

enough  for  the  gradual  accumulation  of  capital  sufficient  to  put 
up  a  new  building."  It  follows  that  the  thing  for  which  we 
pay  net  interest  is  in  truth  a  Gebrauch,  and  it  is  erroneous  and 
inaccurate  to  apply  the  name  to  that  for  which  we  pay  gross 
interest.  I  do  not  believe  that  it  would  be  possible  to  put  the 
representatives  of  this  wonderful  view  in  a  more  embarrassing 
position  than  by  challenging  them  to  define  what  they  mean 
by  Gebi-auch,  What  else  can  it  mean  than  the  receiving  or, 
if  we  like  to  give  it  an  objective  significance,  the  proffering  of 
the  Material  Services  of  which  a  good  is  capable  ?  Or,  if  there 
is  any  objection  to  my  expression,  let  us  say  "  useful  services  " 
with  Say,  or  "releasing  of  a  use  from  material  goods"  or 
"  receiving  of  useful  effects  "  with  Schaffle,  or  however  else  we 
like  to  put  it.  But  define  the  word  as  we  may,  one  thing 
appears  to  my  mind  beyond  dispute.  When  A  makes  over  to 
B  a  house  for  temporary  habitation,  and  B  inhabits  it,  then  A 
has  given  over  to  B  the  Gebrauch  of  the  house,  and  B  has 
taken  the  Gebrauch  of  the  house ;  and  if  B  pays  anything  for 
the  Gebrauch,  he  does  not  pay  a  single  penny  of  hire  or  rent 
for  anything  else  than  this ; — that  he  may  avail  himself  of  the 
useful  properties  and  powers  of  the  house.  In  other  words,  he 
has  paid  for  the  Gebi-auch  transferred  to  him, 

It  may  be  said,  Yes,  perhaps  so ;  but  has  not  B  consumed 
a  portion  of  the  value  of  the  house  itself  ?  and  if  so,  did  he  not 
get  transferred  to  him  a  part  of  the  value  of  the  house  itself, 
in  addition  to  the  use  of  the  house  ?  One  who  would  argue 
thus  might  be  expected  to  hold  the  somewhat  singular  view 
that  two  aspects  of  one  event  are  two  events.  The  truth  of 
the  matter  is  that  the  hirer  lias  received  the  Gebrauch  of  the 
house,  and  only  the  Gebrauch ;  but  in  using  it,  and  through 
using  it,  he  has  diminished  its  value.  He  has  received  a 
"  store  of  energies,"  from  which  he  is  at  liberty  to  "  release  "  so 
many ;  he  has  done  nothing  but  "  release "  or  use  them  ;  but, 
naturally,  the  value  of  the  remainder  of  the  energies  has  been 
diminished  thereby:  To  construe  that  as  meaning  that  the  hirer 
has  received  two  things  alongside  each  other,  Gebrauch  and 
partial  value  of  capital,  appears  to  me  very  much  as  if,  in  buy- 
ing a  fourth  horse  to  match  three  he  had  already,  a  man  were 
to  consider  it  an  acquisition  of  two  separate  things — first,  a 
horse,  and  second,  the  complement  of  the  team  of  four ;  and  as 


250  THE  INDEPENDENT  USE :    UNTENABLE     BOOK  in 

if  he  were  then  to  maintain  that,  of  the  £50  he  paid,  only  one 
portion,  say  £25,  was  the  price  of  the  horse,  while  the  remaining 
£2  5  was  the  price  of  the  complement  of  the  team !  It  is  the 
same  thing  as  if  one  were  to  say  of  a  workman  who  had  put 
up  the  cross  on  the  steeple  and  thereby  finished  the  building 
of  the  steeple,  that  he  had  performed  two  acts — first,  had  put 
up  the  cross,  and  second,  had  finished  the  building  of  the 
steeple ;  and  were  further  to  say  that,  if  the  workman  took  an 
hour  to  do  the  whole  job,  not  more  than  three-quarters  of  an 
hour  were  needed  for  the  erection  of  the  cross,  since  a  part  of 
the  whole  time  expended,  say  a  quarter  of  an  hour,  must  be 
put  to  the  account  of  the  second  act,  the  completion  of  the 
building  of  the  steeple  ! 

But  if,  notwithstanding  all  this,  some  one  thinks  that  he 
sees  in  Gebrauch,  not  the  gross  Nutzung,  but  another  something 
which  is  ill  to  define,  let  him  say  in  what  the  Gebrauch  of  a 
meal  consists.  In  eating  ?  It  cannot  be  so,  for  that  is  a 
gross  Nutzung,  that  swallows  up  the  whole  value  of  the  capital, 
and  of  course  we  cannot  confuse  that  with  the  true  Gebrauch. 
But  in  what  then  does  it  consist  ?  In  an  aliquot  part  of 
eating  ?  or  in  something  entirely  different  from  eating  ?  I 
am  glad  to  think  that  the  duty  of  answering  this  question  does 
not  fall  to  me,  but  to  the  Use  theorists. 

If,  then,  we  are  not  to  give  the  words  Getoauch  and  Nutzung 
a  meaning  that  is  equally  opposed  to  language  and  to  life,  to 
the  representations  of  practice  and  of  science,  we  cannot  deny 
the  gross  Nutzung  the  property  of  being  a  true  Nutzung.  But  if 
there  cannot  be  two  Nutzungen,  and  if  in  any  case  the  gross 
Nutzung  must  be  recognised  as  that  which  correctly  conveys 
the  conception  of  Nutzung,  then  there  is  no  need  to  argue 
further  against  the  net  Nutzung  of  the  Use  theorists. 

But  let  us  leave  all  that  on  one  side,  and  confine  our 
attention  to  the  following.  Whether  the  gross  Nutzung  be  a 
true  Nutzung  or  not,  at  any  rate  it  is  undoubtedly  something. 
And  the  Use  theorists  would  like  to  make  out  the  net  Nutzung 
to  be  something  likewise.  Now  these  two  quantities,  if  they 
both  actually  exist,  must  at  all  events  stand  in  some  relation  to 
each  other.  The  net  Nutzung  must  either  be  part  of  the  gross 
Nutzung  or  it  is  no  part  of  it ;  there  is  no  third  course.  Now 
let  us  see.  If  we  look  at  durable  goods  it  seems  probable 


CHAP,  vni  GROSS  AND  NET  USE  251 

that  the  net  Nutzung  is  a  part  of  the  gross ;  for  since  the 
remuneration  of  the  former,  the  net  interest,  is  contained  in 
the  remuneration  of  the  latter,  the  gross  interest,  so  must  also 
the  first  object  of  purchase  be  contained  in  the  second,  and  be 
a  part  of  it.  This  indeed  even  the  Use  theorists  themselves 
maintain  when  they  analyse  the  one  sum  of  the  gross  Nutzung 
into  net  Nutzung  plus  partial  replacement  of  capital.  But 
look  now  at  perishable  goods.  The  net  interest  I  pay  in  this 
case  is  not  paid  for  their  consumption  ( Verbrauch},  for  if,  on  the 
moment  of  the  consumption,  I  replace  the  perishable  goods  by 
their  fungible  equivalent,  I  do  not  require  to  pay  any  interest. 
What  I  pay  interest  for  is  only  the  delay  in  the  replacement  of 
the  equivalent ;  that  is,  I  pay  it  for  something  that  is  not 
contained  in  the  consumption — that  most  intense  form  of  gross 
use — but  stands  quite  outside  it.  Are  we  to  conclude  then 
that  the  net  Nutzung  is  at  once  part  and  not  part  of  the  gross 
Nutzung?  How  can  the  Use  theorists  explain  this  contradiction  ? 
I  might  draw  out  to  much  greater  length  the  number  of 
riddles  and  contradictions  into  which  the  assumption  of  the 
independent  Nutzung  leads  us.  I  might  ask  the  Use  theorists 
what,  for  instance,  I  should  represent  to  myself  as  the  ten 
years'  Nutzung,  or  the  ten  years'  Gebrauck,  of  the  bottle  of 
wine  that  I  drank  on  the  first  day  of  the  first  year  ?  An 
existence  it  must  have,  for  I  can  buy  or  sell  it  on  a  loan  of 
from  one  to  ten  years.  I  might  point  out  what  a  singular 
assumption  it  is,  even  verging  on  the  ludicrous,  that,  on  the 
moment  when  a  good  by  its  complete  consumption  actually 
ceases  to  be  of  use,  it  should  really  be  only  beginning  to  afford 
a  perpetual  use ;  that  one  debtor,  who  at  the  end  of  a  year 
pays  back  a  bottle  of  wine  he  borrowed,  has  consumed  less 
than  another  who  only  returns  the  bottle  of  wine  at  the  end  of 
ten  years,  inasmuch  as  the  former  has  consumed  the  bottle  of 
wine  and  its  one  year's  use,  the  latter  the  bottle  of  wine  and 
its  ten  years'  use ;  while  all  the  time  it  is  evident  to  everybody 
that  both  parties  have  obtained  the  same  use  from  the  bottle  of 
wine,  and  that  the  obligation  that  emerges,  to  pay  back  another 
bottle  of  wine  sooner  or  later,  has  absolutely  nothing  to  do 
with  the  shorter  or  longer  duration  of  the  objective  uses  of  the 
first  bottle.  But  I  think  that  more  than  enough  has  been  said 
to  carry  conviction. 


252  THE  INDEPENDENT  USE:    UNTENABLE     BOOK  in 

To  sum  up,  I  consider  that  three  things  have  been  here  proved. 
I  think  it  has  been  proved,  firstly,  that  the  nature  of  goods,  as 
material  bearers  of  useful  natural  powers,  precludes  the  con- 
ceivability  of  any  Nutzung  that  does  not  consist  in  the  forth- 
putting  of  their  useful  natural  powers — that  is,  any  Nutzung 
that  is  not  identical  with  what  I  have  called  the  Material 
Services  of  goods — those  services  being  the  basis  not  of  net, 
but  of  gross  interest ;  or,  in  the  case  of  perishable  goods,  their 
entire  capital  value. 

I  think  that  it  has  been  proved,  secondly,  that  all  attempts 
on  the  part  of  the  Use  theorists  to  demonstrate  the  existence 
or  the  conceivability  of  a  net  Nutzung  different  from  the 
material  services,  are  erroneous  or  based  on  a  misunderstanding. 

I  think  it  has  been  proved,  thirdly,  that  the  assumption  of 
the  net  Nutzung  postulated  by  the  Use  theorists  necessarily 
leads  to  absurd  and  contradictory  conclusions. 

I  think,  therefore,  that  I  am  entirely  justified  in  maintaining 
that  the  net  Nutzung,  on  the  existence  of  which  the  Use 
theorists  of  the  Say-Hermann  school  base  their  explanation  of 
interest,  does  not  in  truth  exist,  but  is  only  the  product  of  a 
misleading  fiction. 

But  in  what  way  did  this  remarkable  fiction  enter  into  our 
science  ?  And  how  came  it  to  be  taken  for  reality  ?  By 
recurring  for  a  little  to  the  history  of  the  problem  I  hope  to 
dispel  any  doubts  that  may  linger  in  the  minds  of  my  readers ; 
and,  in  particular,  I  trust  we  may  get  an  opportunity  of  estimat- 
ing at  its  true  value  any  prejudice  that  might  still  linger  as 
a  consequence  of  the  former  victory  of  Salmasius's  theory. 


CHAPTEE    IX 

THE   INDEPENDENT   USE:    ITS    ORIGIN  IN   LEGAL   FICTION 

WE  have  here  to  deal  with  one  of  those  not  uncommon 
cases  where  a  fiction,  originating  in  the  sphere  of  law  and 
originally  used  for  practical  legal  purpose  by  people  who  were 
fully  conscious  of  its  fictitious  character,  has  been  transferred 
to  the  sphere  of  economics,  and  the  consciousness  of  the  fiction 
has  been  lost  in  the  transfer.  Jurisprudence  has  at  all  times 
required  fictions.  To  make  comparatively  few  and  simple 
principles  of  law  suffice  for  the  whole  varied  actuality  of  legal 
life,  jurisprudence  is  often  compelled  to  look  upon  cases  as 
quite  similar  with  each  other  that  in  reality  are  not  similar, 
but  may  be  appropriately  dealt  with  in  practice  as  if  they 
were  so.  It  was  in  this  way  that  the  formulae  fictitiac  of  the 
Roman  civil  process  originated ;  thus  also  the  legal  "  persons." 
the  res  incorporates,  and  innumerable  other  fictions  of  the 
science  of  law. 

Now  it  sometimes  happened  that  a  fiction  which  had 
grown  very  venerable  became  in  the  end  petrified  into  a 
thoroughly  credited  dogma.  If  for  hundreds  of  years  people 
had  been  accustomed  to  treat  a  thing,  both  in  theory  and 
practice,  as  if  it  really  were  essentially  the  same  as  something 
else,  then,  other  circumstances  being  favourable,  it  might  end 
in  their  quite  forgetting  that  there  was  a  fiction.  So  it  is,  as 
I  have  pointed  out  in  another  place,  with  the  res  incorporates 
of  Roman  law ;  and  so  too  it  has  been  with  the  independent 
Nutzung  of  perishable  and  fungible  goods.  Let  us  follow,  step 
by  step,  the  course  whereby  the  fiction  became  petrified  into  a 
dogma. 

There  are  some  goods  the  individuality  of  which  is  of  no 


254  THE  INDEPENDENT  USE:    ITS  ORIGIN     BOOK  in 

importance, — goods  that  are  only  taken  account  of  by  their 
kind  and  amount,  quae  fwndcre,  nuviero,  mcnsura  cotisistunt. 
These  are  called  in  law  fungible  goods.1  Since  no  importance 
attaches  to  their  individuality,  the  replacing  goods  perfectly 
supply  the  place  of  the  replaced  goods.  For  certain  purposes  of 
practical  legal  life  these  goods  could  be  treated  without  difficulty 
as  identical.  Particularly  was  this  the  case  in  such  legal 
transactions  as  related  to  the  giving  away  and  getting  back  of 
fungible  goods.  Here  it  suggested  itself  as  convenient  to 
conceive  of  the  giving  back  of  an  equal  amount  of  fungible 
goods  as  a  giving  back  of  the  very  same  goods ;  in  other  words, 
to  feign  identity  between  the  fungible  goods  given  back  and 
those  given  away. 

So  far  as  I  know,  the  old  Koman  sources  of  law  do  not  put 
this  fiction  formally.  They  say  quite  correctly  of  it  that,  in 
the  loan,  tantundetn  or  idem  genus,  not  simply  idem  is  given 
back.  But  at  any  rate  the  fiction  is  there.  If,  e.g.  the  so-called 
depositum  irregulare,  where  the  depositary  was  allowed  to 
employ  on  his  own  account  the  sum  of  money  given  over  to 
his  safe  keeping,  and  to  replace  the  deposit  in  other  pieces  of 
money,  was  treated  as  a  depositum,2  this  construction  can  only 
be  explained  by  supposing  that  the  lawyers  invoked  the 
assistance  of  the  fiction  whereby  the  pieces  of  money  replaced 
were  considered  identical  with  those  given  in  for  safe  keeping. 
Modern  jurisprudence  has  occasionally  gone  farther,  and  spoken 
explicitly  of  a  "  legal  identity  "  between  fungible  goods.3 

From  this  first  fiction  it  was  but  a  step  to  a  second.  If  it 
once  came  to  be  thought  that,  in  the  loan  and  in  similar  trans- 
actions, the  same  goods  were  given  back  that  the  debtor  had 
received,  the  further  idea  was  logically  bound  to  follow,  that 
the  debtor  had  retained  the  goods  lent  him  during  the  whole 
period  of  the  loan,  had  kept  them  unbroken,  and  had  used 
them  unbroken  ;  that  the  use  obtained  from  them  was  therefore 
a  durable  use;  and  that  where  interest  was  paid  it  was  paid 
.just  for  this  durable  use. 

1  The  common  German  word  is  vertrctbar,  which  might  be  loosely  translated 
here  by  "representative"  or  "replaceable."     But  the  word  "fungible"  is  per- 
haps worth  adopting  in  English  economics. — "W.  S. 

2  See  L.  31,  Dig.  loc.  19,  2,  and  L.  25,  §  1,  Dig.  dep.  16,  3. 

3  Goldschmidt,  Handbueh  des  Handelsrechtes,  second  edition,  Stuttgart,  1883, 
vol.  ii.  part.  i.  p.  26  in  the  note. 


CHAP,  ix  IN  LEGAL  FICTION  255 

This  second  step  in  the  fiction  the  jurists  did  make. 
They  knew  quite  well,  to  begin  with,  that  they  were  only 
dealing  with  a  fiction.  They  knew  quite  well  that  the  goods 
given  back  are  not  identical  with  the  goods  received ;  that  the 
debtor  does  not  hold  and  possess  these  goods  during  the  whole 
period  of  the  loan ; — the  fact  being  that,  to  attain  the  purpose 
of  the  loan,  the  debtor  must,  as  a  rule,  very  soon  entirely  part 
with  the  goods.  Lastly,  they  knew  quite  well  that,  for  the 
same  reason,  the  debtor  does  not  get  any  durable  use  out  of 
the  goods  lent.  But  for  the  practical  purposes  and  require- 
ments of  both  parties  it  was  the  same  as  if  everything 
actually  were  what  it  pretended  to  be,  and  therefore  the  jurists 
could  employ  the  fiction.  They  gave  expression  to  this 
fiction  in  the  sphere  of  their  science  when,  on  the  ground  of 
it,  they  confirmed  the  expression  for  loan  interest  that 
had  already  found  a  home  in  the  speech  of  the  people,  usura, 
money  paid  for  use ;  when  they  taught  that  interest  was 
paid  for  the  use  of  the  sum  lent ;  and  when  they  made  out  a 
usufruct  even  in  perishable  goods.  This  usufruct  of  course  was 
only  a  quasi-usufruct,  the  lawyers  being  quite  aware  that  they 
were  only  dealing  with  a  fiction.  On  one  occasion  they  even 
expressed  this  pointedly,  in  correcting  a  legislative  act  that  had 
given  the  fiction  too  realistic  an  expression.1 

Finally,  after  many  centuries  of  teaching  that  the  usura 
was  money  paid  for  use,  and  in  an  age  when  the  better  part  of 
the  living  spirit  of  classical  jurisprudence  had  fled,  and  had 
consequently  been  replaced  by  a  greater  reverence  for  trans- 
mitted formulas,  the  justification  of  loan  interest  was  sharply 
attacked  by  the  canonists.  One  of  their  strongest  weapons  was 
the  discovery  of  this  fiction  in  regard  to  the  uses  of  perish- 

1  Ulpian,  it  is  well  known,  in  Dig.  vii.  5,  L.  1,  De  usufructu  carum  rerum 
quae  usu  consumuntur  vcl  minuntur,  quotes  a  decree  of  the  Senate  which  established 
the  bequeathing  of  a  usufruct  in  perishable  goods.  On  this  Gaius  remarks : 
"  Quo  senatus  consulto  non  id  effectum  est,  tit  pecuniae  ustifructus  proprie  esset ; 
nee  enim  naturalis  ratio  auctoritate  senatus  commutari  potuit ;  sed,  remedio 
introducto,  caepit  quasi  usufructus  haberi."  I  do  not  agree  with  Knies  (Geld, 
p.  75)  that  Gaius  took  exception  simply  to  the  formal  flaw  that  there  could  only  be 
a  regular  usufruct  in  goods  belonging  to  another  person,  while  the  legatee  holds 
the  perishable  goods  left  him  as  his  own  property,  res  suae.  The  appeal  to  the 
naturalis  ratio  could  hardly  have  been  made  in  order  to  rehabilitate  a  defective 
formal  definition  of  usufruct ;  it  is  infinitely  more  probable  that  it  was  made  on 
behalf  of  a  truth  of  nature  that  was  seriously  violated  by  the  decree. 


256  THE  INDEPENDENT  USE :    ITS  ORIGIN     BOOK  in 

able  goods.  For  the  rest,  their  argument  appeared  so  convincing 
that  one  could  scarcely  see  how  loan  interest  was  to  be 
saved,  if  the  premiss  were  granted  that  there  is  no  such  thing 
as  an  independent  use  of  perishable  goods.  Thus  the  fiction 
all  at  once  attained  an  importance  it  never  had  before. 
To  believe  in  the  actual  existence  of  the  usus  was  the  same 
thing  as  to  approve  of  interest ;  not  to  believe  in  it  seemed  to 
force  one  to  condemn  it.  To  save  interest  in  this  dilemma, 
people  were  inclined  to  give  the  legal  formula  more  honour 
than  it  deserved;  and  Salmasius  and  his  followers  exerted 
themselves  to  find  reasons  which  would  allow  them  to  take 
the  formula  for  the  fact.  The  reasons  they  did  find  were 
just  good  enough  to  convince  people  eager  to  be  convinced, — 
as  already  won  over  by  a  demonstration  that  was  in  other 
respects  excellent, — that  Salmasius,  on  the  whole,  had  right 
on  his  side ;  while  his  opponents,  who  were  evidently  wrong  as 
regards  the  chief  point,  were  suspected  even  on  those  points 
where  they  were  occasionally  right.  So  it  happened — not  for 
the  first,  and  certainly  not  for  the  last  time — that  under  the 
pressure  of  practical  exigencies  an  abortive  theory  was  born, 
and  the  old  fiction  of  the  lawyers  proclaimed  as  fact. 

Thus  it  has  remained  ever  since,  at  least  in  political 
economy.  While  the  newer  jurisprudence  drew  back  for  the 
most  part  from  the  doctrine  of  Salmasius,  modern  political 
economy  has  held  by  the  old  stock  formula  taken  from  the 
legal  repertoire.  In  the  seventeenth  century  the  formula  had 
served  to  support  the  practical  justification  of  interest ;  in  the 
nineteenth  it  did  as  good  service  in  affording  a  theoretical 
explanation  of  it,  which  people  would  have  been  embarrassed 
to  get  otherwise.  This  puzzling  "  surplus  value "  had  to  be 
explained.  It  appeared  to  hang  in  the  air.  Something  was 
wanted  to  hang  it  from.  And  there,  in  the  most  welcome 
way,  the  old  fiction  offered  itself.  As  beseemed  its  rising 
claims  as  a  theory,  it  was  dressed  out  in  all  sorts  of  new 
accessories,  and  so  was  worthy  at  last,  under  the  name  of 
Nutzung,  to  take  the  highest  place  of  honour,  and  become  the 
foundation  stone  of  a  theory  of  interest  as  distinctive  as  it  is 
comprehensive. 

It  may  be  the  good  fortune  of  these  pages  to  break  the 
spell  under  which  the  custom  of  centuries  has  laid  our  con- 


CHAP,  ix  IN  LEGAL  FICTION  257 

ception.  It  may  be  that  the  net  Nutzung  of  capital  will 
be  relegated  finally  to  that  domain  from  which  it  never  should 
have  emerged — the  domain  of  fiction,  of  metaphor,  which,  as 
Bastiat  once  remarked  with  only  too  much  truth,  has  so  often 
turned  the  science  from  the  right  path.  With  it  many  a 
deeply  rooted  conviction  will  have  to  be  given  up — not  the 
Use  theory  only,  in  the  narrower  and  proper  sense  of  the 
word,  which  makes  the  Nutzung  the  chief  pillar  in  the 
explanation  of  interest,  but  a  number  of  other  convictions  also, 
which  are  commonly  accepted  outside  the  rank  of  the  Use 
theorists,  and  which  employ  that  conception  along  with  others. 
Among  other  things  will  go  the  favourite  construction  of  the  loan 
as  a  transfer  of  uses,  as  having  its  analogue  in  rent  and  hire. 

But  what  is  to  be  put  in  its  place  ? 

To  answer  that  does  not,  strictly  speaking,  belong  to  our 
present  critical  task ;  it  is  a  matter  for  the  positive  statement 
which  I  have  reserved  for  the  second  volume  of  this  work. 
It  may,  however,  with  some  justice  be  expected  that,  when 
I  assume  the  doctrine  of  the  canonists  as  regards  one  of  its 
principal  points,  I  should  at  least  indicate  how  we  are  to 
escape  the  obviously  false  conclusions  of  the  canonists. 
Consequently  I  shall  briefly  indicate  my  own  view  on  the 
nature  of  the  loan ;  of  course  under  the  reservation  of  return- 
ing to  more  exact  treatment  of  it  in  my  next  volume,  and 
meantime  asking  my  readers  to  postpone  their  final  verdict  on 
my  theory  till  such  tune  as  I  have  stated  it  in  detail,  and 
connected  it  with  the  entire  theory  of  interest. 

I  may  best  take  up  the  subject  at  the  old  canonist 
dispute.  In  my  opinion  the  canonists  alone  were  wrong  in 
their  conclusions,  while  both  parties  were  wrong  in  the 
reasoning  which  led  them  to  their  conclusions.  The  canonists 
remained  in  the  wrong,  because  they  made  only  one  mistake 
in  their  reasoning.  Salmasius  made  two  mistakes,  but  of 
these  the  second  cancelled  the  harm  done  by  the  first,  so  that 
after  a  very  tumultuous  course  his  argument  ended  in  reaching 
the  truth.  I  explain  this  as  follows  : — 

Both  parties  agree  in  regarding  it  as  an  axiom  that  the 
capital  sum  replaced  on  the  expiry  of  the  loan  contract  is  the 
equivalent,  and,  indeed,  is  the  exact  and  full  equivalent,  of  the 
capital  sum  originally  lent.  Now  this  assumption  is  so  false 

s 


258  THE  INDEPENDENT  USE:    ITS  ORIGIN      BOOK  in 

that  the  wonder  is  how  it  has  not  long  ago  been  exposed  as  a 
superstition.  Every  economist  knows  that  the  value  of  goods 
does  not  depend  simply  on  their  physical  qualities,  but,  to  a 
very  great  extent,  on  the  circumstances  under  which  they 
become  available  for  the  satisfaction  of  human  needs.  It  is 
well  known  that  goods  of  the  same  kind,  e.g.  grain,  have  a 
very  different  value  in  varying  circumstances.  Among  the 
most  important  of  the  circumstances  that  influence  the  value 
of  goods,  outside  of  their  physical  constitution,  are  the  time 
and  place  at  which  they  become  available.  It  would  be  very 
strange  if  goods  of  a  definite  kind  had  exactly  the  same  value 
at  all  places  where  they  might  be  found.  It  would  be  strange, 
for  instance,  if  a  cwt.  of  coal  at  the  pit-brow  had  exactly  the 
same  value  as  a  cwt.  of  coal  at  the  railway  terminus,  and  if 
that  again  had  exactly  the  same  value  as  a  cwt.  of  coal  at 
the  fireside.  Now  it  would  be  quite  as  strange  if  £100  which 
are  at  my  disposal  to-day  should  be  exactly  equivalent  to  £100 
which  I  am  to  receive  a  year  later,  or  ten  or  a  hundred  years 
later.  On  the  contrary  it  is  clear  that,  if  one  and  the  same 
quantity  of  goods  falls  to  the  disposal  of  an  economical  subject 
at  different  points  of  time,  its  economical  position  will,  as  a 
rule,  come  under  a  different  influence,  and,  in  conformity  with 
that,  the  goods  will  obtain  a  different  value.  It  is  impossible 
to  agree  with  Salmasius  and  the  canonists,  and  assume  it  as  a 
self-evident  principle  that  there  is  a  complete  equivalence 
between  the  present  goods  given  in  loan  and  the  goods  of  like 
number  and  kind  returned  at  some  distant  period.  Such  an 
equivalence,  on  the  contrary,  can  only  be  a  very  rare  and 
accidental  exception. 

It  is  very  evident  from  what  source  both  parties  obtained 
the  quite  unscientific  view  of  the  equivalence  between  the  sum 
of  capital  given  out  and  that  received  back.  It  is  from  the 
old  legal  fiction  of  the  identity  between  fungible  goods  of  similar 
kind  and  number.  If,  on  the  strength  of  this  fiction,  the  loan 
is  conceived  of  as  if  it  meant  that  the  same  £100,  which  the 
creditor  advances  to  the  debtor,  is  given  back  by  the  debtor  to 
the  creditor  on  the  expiry  of  the  loan,  then  of  course  this 
replacement  must  be  looked  on  as  entirely  equivalent  and  just. 
It  was  the  common  mistake  of  the  canonists  and  of  their 
opponents  that  they  fell  into  this  trap  laid  for  them  in  the 


CHAP,  ix  IN  LEGAL  FICTION  259 

first  part  of  the  legal  fiction.  It  was  the  sole  mistake  of  the 
canonists  and  the  first  mistake  of  Salmasius.  The  further 
development  was  simply  this  : — 

The  canonists  remained  in  error  because  this  was  their 
only  mistake.  Once  they  had  made  it  they  began  at  the 
wrong  time  to  be  sharp-sighted,  and  to  expose  the  assumed 
independent  use  of  the  loaned  goods  as  a  fiction.  With  that 
fell  away  every  support  that  could  properly  have  been  given 
to  interest,  and  they  were  bound — falsely,  but  logically — to 
pronounce  it  wrong.  But  the  first  error  that  Salmasius  had 
made,  in  the  fiction  of  the  identity  between  the  capital 
received  and  the  capital  paid  back,  he  rectified  by  a  second ; 
he  retained  that  fiction  as  regards  the  loan  of  money,  and  held 
that  in  this  case  the  borrower  possessed  the  "  use "  of  the 
loaned  goods  all  the  time  of  the  loan. 

The  truth  is  in  neither  reading.  The  loan  is  a  real 
exchange  of  present  goods  against  future  goods.  For  reasons 
that  I  shall  give  in  detail  in  my  second  volume,  present 
goods  invariably  possess  a  greater  value  than  future  goods  of 
the  same  number  and  kind,  and  therefore  a  definite  sum  of 
present  goods  can,  as  a  rule,  only  be  purchased  by  a  larger  sum 
of  future  goods.  Present  goods  possess  an  agio  in  future  goods. 
This  agio  is  interest.  It  is  not  a  separate  equivalent  for  a 
separate  and  durable  use  of  the  loaned  goods,  for  that  is  incon- 
ceivable ;  it  is  a  part  equivalent  of  the  loaned  sum,  kept 
separate  for  practical  reasons.  The  replacement  of  the  capital 
+  the  interest  constitutes  the  full  equivalent.1 

1  The  germs  of  this  view,  which  I  consider  the  only  correct  one,  are  to  be 
found  in  Galiani  (see  above,  p.  49),  in  Turg^t  (see  above,  p.  56),  and  latterly  in 
Knies,  who,  however,  has  since  expressly  withdrawn  it  as  erroneous. 


CHAPTER  X 

MENGER'S  CONCEPTION  OF  USE 

UP  till  now  my  analyses  have  gone  to  prove  that  there  is 
no  independent  use  of  goods  of  the  kind  conceived  of  by  the 
Say-Hermann  side  of  the  Use  theory,  and  by  nearly  all  the 
economists  of  the  present  day  in  their  train.  It  still  remains 
to  be  proved  that  there  cannot  be  an  independent  use  even  in 
that  essentially  different  shape  that  Menger  sought  to  give  the 
conception. 

While  the  Say-Hermann  school  represented  the  "  net  use  " 
as  an  objective  element  of  use,  separating  itself  from  goods, 
Menger  explains  it  as  a  Disposal ;  indeed,  as  "  a  disposal  over 
quantities  of  economical  goods  within  a  definite  period  of 
time."  l  This  disposal  being  for  economic  subjects  a  means  to 
better  and  more  complete  satisfaction  of  their  wants,  it  acquires, 
according  to  Menger,  the  character  of  an  independent  good, 
which,  on  account  of  its  relative  scarcity,  will  usually  be  at 
the  same  time  an  economical  good.2 

Now,  to  go  no  farther,  it  seems  to  be  putting  a  very  daring 
construction  on  things  to  say  that  the  disposal  over  goods,  that 
is,  a  relation  to  a  good,  is  itself  a  good.  I  have  on  another 
occasion 3  stated  at  length  the  reasons  for  which  I  consider  it 

1  Grundsatze,  p.  132,  etc.  -  Ibid.  p.  132,  etc. 

3  See  my  JKcchlc  und  Vcrhdltnissc,  particularly  p.  124.  Sec  also  the  acute 
remarks  of  H.  Dietzel  in  the  tract  Dcr  Ausgangspunkt  der  Sozialwirthschafts- 
Ichre  und  ihr  Grundbcgriff  (Tiibiuycr  Zeitschrift  fur  die  gcsammtc  Staatswis- 
scnschaft,  Jahrgany,  39),  p.  78,  etc.  On  the  other  hand,  I  cannot  agree  with 
Dietzel  in  some  further  criticisms  that  he  makes  on  Menger  on  p.  52,  etc.  He 
has  two  objections  to  Monger's  fundamental  definition  of  economical  goods  as 
"  those  goods  the  available  quantity  of  which  is  less  than  human  need." 
First,  he  says,  in  trade  generally  we  must  recognise  "the  tendency  to  assimilate 
need  and  available  quantity,"  on  account  of  which  "in  every  normal  case  "  a 


CHAP,  x  DISPOSAL  OVER  GOODS  261 

theoretically  inadmissible  to  recognise  relations  as  real  Goods, 
in  the  sense  given  to  that  term  by  economic  theory.  These 
reasons,  I  believe,  have  the  same  validity  as  regards  this 
"  disposal "  over  goods. 

To  maintain  its  position  in  face  of  these  weighty  deductive 
objections  Monger's  hypothesis  must  have  some  very  strong 
and  positive  support.  I  doubt  if  it  has  sufficient  support  of 
this  kind.  The  special  character  of  my  present  contention 
prevents  us  from  the  first  from  obtaining  any  direct  evidence, 
such  as  might  be  given  by  the  senses,  that  "  disposal "  really 
is  a  good.  The  only  thing  we  have  to  consider  is  whether 
the  hypothesis  is  accredited  by  a  consensus  of  sufficiently 
numerous  and  significant  indirect  supports.  And  this  I  must 
doubt. 

It  appears  to  me  that  there  is,  distinctively,  only  one 
indirect  support  for  it,  and  that  is,  the  existence  of  a  surplus 
value  which  is  unexplained  otherwise.  As  astronomers,  from 
certain  otherwise  unexplained  disturbances  in  the  orbits  of 
known  planets,  have  concluded  for  the  existence  of  disturbing 
and  as  yet  unknown  planetary  bodies,  so  does  Menger  postulate 

number  of  the  most  important  economical  objects  must  fall  out  of  the  circle  of 
economical  goods.  And  second,  he  says,  Monger's  definition  of  his  conception  is 
not  definite  enough,  and  leaves  room  for  all  sort  of  things  that  have  not  the 
character  of  economical  goods,  such,  for  instance,  as  useful  "technical  knowledge." 
I  onsider  that  both  objections  are  based  on  a  misunderstanding.  As  a  matter 
of  fact  trade  can  never  quite  assimilate  the  available  quantity  of  economical 
goods  to  the  need  for  them  ;  it  can  of  course  meet  the  demand  that  has  power 
to  pay,  but  never  the  need.  However  commerce  may  flood  a  market  with 
exchangeable  goods,  while  it  will  very  soon  succeed  in  supplying  the  amount  that 
people  can  buy,  it  will  never  supply  all  they  wish  to  possess  for  the  purpose 
of  supplying  their  wants  to  the  saturation  point — that  point  where  the  last  and 
most  insignificant  wish  is  gratified.  As  to  the  second  objection,  Monger's 
definition  seems  to  me  to  mark  out  the  circle  of  economic  goods  both  correctly 
and  sufficiently.  We  must  not  overlook  the  fact  that  what  determines  the  con- 
ception of  the  "  good "  has  a  share  in  determining  the  conception  of  the 
"economical  good."  Things  like  qualities,  skill,  rights,  relations,  cannot,  I 
admit,  be  economical  goods,  even  if  tluy  are  only  to  be  had  in  insufficient  quantity, 
but  that  is  because  they  are  not  true  goods — that  is  to  say,  they  are  not  really 
effectual  means  of  satisfying  human  wants,  and  at  best  can  only  be  called  so  by 
a  metaphor.  But  where  we  have  true  goods,  such  of  them  as  are  insufficient  in 
quantity  are  at  the  same  time  economical  goods.  If,  therefore,  Menger,  in  some 
individual  cases,  does  come  into  collision  witli  truth — as  I  maintain  he  does  in 
regard  to  the  economical  good  "disposal" — it  is  not  because  he  has  made  a 
mistake  in  defining  the  attribute  "economical,"  but  only  because  he  has  occasion- 
ally treated  the  conception  of  the  "good  "  a  little  too  loosely. 


262  MENGER'S  CONCEPTION  OF  USE  BOOK  in 

the  existence  of  a  "  bearer  "  of  the  surplus  value  which  other- 
wise is  unexplained.  And  since  the  disposal  over  quantities  of 
goods  for  definite  periods  of  time  appears  to  him  to  stand  in 
a  regular  connection  with  the  emergence  and  the  amount  of 
surplus  value,  he  does  not  hesitate  to  put  forward  the  hypo- 
thesis that  this  disposal  is  the  "bearer"  sought  for,  and,  as  such, 
an  independent  good  of  independent  nature.  If  the  possibility 
of  any  other  explanation  had  ever  occurred  to  this  distinguished 
thinker,  I  am  persuaded  that  he  would  have  withdrawn  his 
hypothesis  at  once. 

Now  is  this  one  indirect  point  of  support  sufficient  to 
prove  that  "  disposal  "  is  an  independent  good  ? 

There  are  two  reasons  for  answering  this  in  the  negative. 
The  one  is  that  the  phenomena  of  surplus  value  can  be  ex- 
plained in  an  entirely  satisfactory  way  without  this  hypothesis, 
and  indeed  can  be  explained  on  lines  that  Menger  himself  has 
laid  down  in  his  now  classical  theory  of  value ;  the  proof  of 
this  I  hope  to  give  in  my  next  volume.  But  the  following 
consideration  is  of  itself,  in  my  opinion,  quite  convincing. 

According  to  Monger's  theory  the  loan  is  looked  upon  as 
a  transference  of  disposal  over  goods.  The  longer  then  the 
period  of  the  loan,  the  greater  of  course  is  the  quantity  of  the 
transferred  good,  the  disposal.  In  a  loan  for  two  years  more 
disposal  is  transferred  than  in  a  loan  for  one  year ;  in  a  three 
years'  loan  more  disposal  than  in  a  two  years'  loan ;  in  a 
hundred  years'  loan  almost  an  unlimited  amount  of  disposal  is 
transferred.  Finally,  if  the  replacement  of  the  capital  is  not 
only  postponed  for  a  very  long  time,  but  is  altogether  dispensed 
with,  surely  a  quite  infinite  amount  of  disposal  is  transferred 
to  the  borrower.  This,  for  instance,  will  be  the  case  if  goods 
are  not  lent,  but  given. 

We  now  ask  in  such  a  case,  How  much  value  is  received 
by  the  one  to  whom  the  gift  is  made  ?  There  can  be  no 
doubt  that  he  receives  as  much  value  in  capital  as  is  possessed 
by  the  tiling  given.  And  the  value  of  the  permanent  disposal 
that  inheres  in  the  thing,  and  is  presented  along  with  it? — 
Is  evidently  contained  in  the  capital  value  of  the  thing  itself. 
From  which  I  draw  the  conclusion — and  I  do  not  think  I 
am  perpetrating  any  fallacy  in  so  concluding — that  if  the 
plus,  viz.  the  value  of  the  permanently  inhering  disposal, 


CHAP,  x  DISPROVED  263 

is  contained  in  the  capital  value  of  the  good  itself,  the 
minus  contained  in  it,  the  temporary  disposal  over  a  good, 
must  be  contained  in  the  value  of  the  good  itself.  The 
temporary  disposal,  therefore,  cannot  be,  as  Menger  assumes, 
an  independent  bearer  of  value  alongside  the  value  of  the 
good  in  itself.1 

1  If  we  put  the  illustration  a  little  differently  it  may  show  more  forcibly 
that  the  value  of  the  disposal  is  contained  in  the  value  of  the  good.  Suppose 
that  A  first  lends  B  a  thing  for  twenty  years  without  interest — presents 
him  therefore  with  the  good  called  "  disposal  for  twenty  years,"  and  then, 
a  couple  of  days  after  the  loan  contract  is  concluded,  presents  him  with 
the  thing  itself.  Here  he  has  in  two  actions  given  away  the  twenty  years' 
disposal  and  the  thing  itself.  If  the  "  disposal "  were  a  thing  of  independent  value 
in  addition  to  the  thing  itself,  the  total  value  of  the  gift  would  obviously  be 
greater  than  the  value  of  the  thing  itself,  which  just  as  obviously  is  not  the 
case. 


CHAPTEK    XI 

FINAL    INSUFFICIENCY    OF    THE    USE    THEORY 

IN  Chapter  III.  I  indicated  that  I  proposed  to  maintain  two 
theses.  The  first  of  these  I  think  I  may  regard  as  proved, 
viz.  that  the  use  assumed  by  the  Use  theory  as  having  an 
independent  existence  has  really  no  existence  at  all.  But 
even  if  it  had,  the  actual  phenomena  of  interest  would  not  be 
sufficiently  explained  thereby.  The  proof  of  this  second  thesis 
will  not  require  many  words. 

The  Use  theory,  in  virtue  of  its  special  line  of  explanation, 
is  led  to  make  a  distinction  between  a  value  which  goods  have 
in  themselves,  and  a  value  which  the  use  of  goods  has.  In 
this  it  starts  with  the  tacit  assumption  that  the  usual 
estimated  value,  or  selling  value  of  real  capital,  represents  the 
value  of  the  goods  themselves,  exclusive  of  the  value  of  their 
use ;  the  explanation  of  surplus  value  being  based  on  this  very 
circumstance,  that  the  value  of  the  use  joins  itself,  as  a  quite 
new  element,  to  the  value  of  the  substance  of  capital,  and  that 
the  two  together  make  up  the  value  of  the  product. 

But  this  assumption  contradicts  the  actual  phenomena  of 
the  economical  world. 

It  is  well  known  that  a  bond  only  obtains  a  price  equiva- 
lent to  its  full  course  value  if  it  is  provided  with  all  the 
coupons  belonging  to  it ;  in  other  words,  if  the  disposal  over 
all  its  future  "uses" — to  adopt  the  language  of  a  Use  theorist — 
is  transferred  to  the  buyer  at  the  same  time  with  the  bond. 
But  if  one  of  the  coupons  is  missing,  the  buyer  will  always 
make  a  corresponding  reduction  in  the  price  that  he  pays 
for  the  bond.  An  analogous  experience  occurs  with  all 
other  goods.  If,  in  selling  an  estate  that  otherwise  would 


CHAP,  xi      USE   WOULD  NOT  EXPLAIN  INTEREST  265 

have  fetched  £10,000,  I  retain  the  use  of  the  estate  for  one 
or  more  years,  or,  if  I  sell  another  such  estate  which  is 
burdened,  perhaps  in  virtue  of  a  legacy,  with  so  many  years' 
claim  by  a  third  party  to  its  produce,  there  is  no  doubt  that 
the  price  obtainable  for  the  estate  will  fall  below  the  amount 
of  £10, 000  by  a  sum  that  corresponds  to  the  "uses"  retained, 
or  claimed  by  the  third  party. 

These  facts,  which  may  be  multiplied  at  will,  in  my 
opinion  admit  of  being  interpreted  in  only  one  way, — that  the 
usual  estimated  value  or  selling  value  of  goods  embraces  not 
only  the  value  of  the  "goods  in  themselves,"  but  also  that  of 
their  future  "  uses,"  supposing  there  are  any  such. 

But  if  this  is  so,  then  the  "  use  "  fails  to  explain  the  very 
thing  which  it  was  intended  by  the  Use  theory  to  explain. 
That  theory  would  explain  the  fact  that  the  value  of  a  capital 
of  £100  expands  in  its  product  to  £105,  by  saying  that  a  new 
and  independent  element  of  the  value  of  £5  had  been  added 
to  it.  This  explanation  falls  to  the  ground,  as  the  Use  theory 
must  recognise,  the  moment  it  is  seen  that,  in  the  capital  value 
of  £100,  the  future  use  itself  has  been  considered  and  is 
contained.  However  unreservedly  one  may  admit  the  existence 
of  such  uses,  the  riddle  of  surplus  value  is  not  read  by  them ; 
the  form  of  the  question  is  only  a  little  changed.  It  will  now 
run  :  How  comes  it  that  the  value  of  the  elements  of  a  product 
of  capital,  viz.  substance  of  capital  and  uses  of  capital,  which 
before  were  worth  together  £100,  expands  in  the  course 
of  the  production  to  £105  ?  The  fact  is,  that  instead 
of  one  riddle  we  have  now  two.  The  first,  that  given 
by  the  nature  of  the  phenomena  of  every  interest  theory, 
runs :  Why  does  the  value  of  the  elements  expand  by  the 
amount  of  the  surplus  value  ?  To  this  the  Use  theory  has 
added  a  second  riddle  of  its  own,  In  what  way  do  the  future 
"  uses  "  of  a  good  and  the  value  of  the  "  good  in  itself "  together 
make  up  the  present  capital  value  of  the  good  ? — and  no  Use 
theorist  has  faced  the  difficulties  of  such  a  problem. 

Thus  the  Use  theory  ends  by  putting  more  problems  than 
it  started  with. 

But  if  it  has  not  had  the  good  fortune  to  solve  the 
interest  problem,  the  Use  theory  has  contributed  more  than 
any  other  to  prepare  the  way  towards  it.  While  many  other 


266          FINAL  INSUFFICIENCY  OF  USE  THEORY    BOOK  in 

theories  went  wandering  in  ways  that  were  quite  unfruitful, 
the  Use  theory  managed  to  gather  together  many  an  important 
piece  of  knowledge.  I  might  compare  it  with  some  of  the 
older  theories  of  natural  science ;  with  that  combustion  theory 
of  ancient  times  that  worked  with  the  mystical  element 
Phlogiston ;  or  with  that  older  theory  of  heat  that  worked  with 
a  Warm  Fluid.  Phlogiston  and  warm  fluid  turned  out  to  be 
fabulous  essences,  just  as  the  "  net  use  "  turns  out  to  be.  But 
the  symbol  which  in  the  meantime  our  theorists  put  in  the 
place  of  the  unknown  something,  helped  in  the  same  way  as 
the  x  of  our  equations  to  discover  a  number  of  valuable 
relations  and  laws  revolving  about  that  unknown  something. 
It  did  not  point  out  the  truth,  but  it  helped  to  bring  about  its 
discovery. 


BOOK  IV 

THE    ABSTINENCE    THEORY 


CHAPTEE  I 

SENIOR'S  STATEMENT  OF  THE  THEORY 

N.  W.  SENIOR  must  be  regarded  as  the  founder  of  the 
Abstinence  theory.  It  appeared  first  in  his  lectures  delivered 
before  the  University  of  Oxford,  and  later  in  his  Outlines  of 
the  Science  of  Political  Economy* 

Rightly  to  estimate  Senior's  theory  we  must  for  a  moment 
recall  the  position  which  the  doctrine  of  interest  held  in 
England  about  the  year  1830. 

The  chief  writers  of  the  modern  school  of  political  economy, 
Adam  Smith  and  Ricardo — the  former  with  less,  the  latter 
with  greater  distinctness — had  pronounced  labour  to  be  the  only 
source  of  value.  Logically  carried  out,  this  could  leave  no  room 
for  the  phenomenon  of  interest.  All  the  same,  interest  existed 
as  a  fact,  and  exerted  an  undeniable  influence  on  the  relative 
exchange  value  of  goods.  Adam  Smith  and  Ricardo  took  notice 
of  this  exception  to  the  "  labour  principle,"  without  seriously 
trying  either  to  reconcile  the  disturbing  exception  with  the 
theory,  or  to  explain  it  by  an  independent  principle.  Thus 
with  them  interest  forms  an  unexplained  and  contradictory 
exception  to  their  rule. 

This  the  succeeding  generation  of  economical  writers  began 
to  perceive,  and  they  made  the  attempt  to  restore  harmony 
between  theory  and  practice.  They  did  so  in  two  different 
ways.  One  party  sought  to  accommodate  practice  to  theory. 
They  held  fast  by  the  principle  that  labour  alone  creates  value, 
and  did  their  best  to  represent  even  interest  as  the  result  and 
wage  of  labour, — in  which,  naturally,  they  were  not  very 

1  Extracted  from  the  Encyclopaedia  Metropolitana,  London,  1836.     I  quote 
from  the  fifth  edition,  London,  1863. 


270  THE  ABSTINENCE  THEORY  BOOK  i 

successful.  The  most  important  representatives  of  this  party 
are  James  Mill  and  M'Culloch.1 

The  other  party  with  more  propriety  tried  to  accommodate 
theory  to  fact.  This  they  did  in  various  ways.  Lauderdale 
pronounced  capital,  as  well  as  labour,  to  be  productive,  but  his 
views  found  little  acceptance  among  his  countrymen.  Ever 
since  the  time  of  Locke  English  economists  were  much  too 
thoroughly  acquainted  with  the  idea  that  capital  itself  is  the 
result  of  labour  to  be  willing  to  recognise  in  it  an  independent 
productive  power.  Others  again,  with  Malthus  at  their  head, 
found  a  way  of  escape  in  explaining  profit  as  a  constituent  part 
of  the  costs  of  production  alongside  of  labour.  Thus,  formally 
at  least,  was  the  phenomenon  of  interest  brought  into  harmony 
with  the  ruling  theory  of  value.  Costs,  they  said,  regulate 
value.  Interest  is  one  of  the  costs.  Consequently  the  value 
of  products  must  be  high  enough  to  leave  a  profit  to  capital 
after  labour  has  received  its  remuneration. 

It  must  be  admitted  that  this  explanation  left  substantially 
everything  to  be  desired.  It  was  too  evident  that  profit  was  a 
surplus  over  the  costs,  and  not  a  constituent  part  of  them ;  a 
result  and  not  a  sacrifice. 

Thus  neither  of  the  economic  positions  which  were  then 
taken  on  the  theory  of  interest  was  quite  satisfactory.  Each 
had  some  adherents,  but  more  opponents ;  and  these  opponents 
found  a  welcome  opening  for  attack  in  the  sensible  weaknesses 
of  the  doctrine.  The  opportunity  was  amply  utilised.  The 
one  party  was  forced  to  see  its  assertion  translated  into  the 
ridiculous  statement  that  the  increment  of  value  which  a  cask 
of  wine  gets  through  lying  in  a  cellar  can  be  traced  to  labour. 
The  other  party  was  forced,  by  inexorable  logic,  to  confess  that  a 
surplus  is  not  an  outlay.  And  while  the  two  parties  were  thus  at 
variance  over  the  proper  foundation  of  interest,  a  third  party 
began  to  make  itself  heard,  if  only  modestly  at  first, — a  party 
which  explained  interest  as  having  no  economical  foundation, 
as  being  merely  an  injury  to  the  labourer.2 

Amid  this  restless  and  barren  surging  of  opinions  came 
Senior,  proclaiming  a  new  principle  of  interest,  viz.  that  interest 
is  a  reward  for  the  capitalist's  Abstinence. 

1  See  above,  p.  97,  and  below,  book  vii. 

2  Ever  since  Hodgskin's  writings  (1825).     See  below,  book  vi. 


CHAP,  i  NEBENIUS,  SCROPE  271 

Isolated  statements  expressing  the  same  idea  had  indeed 
appeared  frequently  before  Senior's  time.  We  may  see  it  fore- 
shadowed in  the  often  recurring  observation  of  Adam  Smith 
and  Kicardo  that  the  capitalist  must  receive  interest,  because 
otherwise  he  would  have  no  motive  for  the  accumulation  and 
preservation  of  capital ;  as  also  in  the  nicfc  opposition  of  "  future 
profit"  to  "present  enjoyment"  in  another  part  of  Adam  Smith's 
writings.1  More  distinct  agreement  is  shown  by  Nebenius  in 
Germany  and  Scrope  in  England. 

Nebenius  found  the  explanation  of  the  exchange  value  of 
the  services  of  capital,  among  other  things,  in  this,  that  capitals 
are  only  got  through  more  or  less  painful  privations  or  exertions, 
and  that  men  can  only  be  induced  to  undergo  these  by  getting 
a  corresponding  advantage.  But  he  does  not  discuss  the  idea 
any  further,  and  shows  himself  in  the  main  an  adherent  of  a 
Use  theory  which  shades  into  the  Productivity  theory.2 

Scrope  puts  the  same  idea  still  more  directly.3  After 
having  explained  that,  over  and  above  the  replacement  of 
the  capital  consumed  in  production,  there  must  remain  to 
the  capitalist  some  surplus,  because  it  would  not  be  worth  his 
while  to  spend  his  capital  productively  if  he  were  to  gain 
nothing  by  it,  he  explicitly  declares  (p.  146):  "The  profit 
obtained  by  ,the  owner  of  capital  from  its  productive  employ- 
ment is  to  be  viewed  in  the  light  of  a  compensation  to  him  for 
abstaining  for  a  time  from  the  consumption  of  that  portion  of 
his  property  in  personal  gratification."  In  what  follows  it 
must  be  confessed  that  he  treats  the  idea  as  if  it  was  peculiarly 
"  time  "  that  was  the  object  of  the  capitalist's  sacrifice  ;  argues 
in  a  lively  way  against  M'Culloch  and  James  Mill,  who  had 
declared  "  time "  to  be  only  a  word,  an  empty  sound,  which 
could  do  nothing,  and  was  nothing ;  and  does  not  even  hesitate 
to  declare  that  time  is  a  constituent  part  of  the  costs  of  pro- 
duction :  "  The  cost  of  producing  any  article  comprehends 
(1)  the  labour,  capital,  and  time  required  to  create  and  bring 
it  to  market"  (p.  188), — a  strange  falling  off,  which  scarcely 
need  be  seriously  discussed. 

Now  this  same  idea,  which  his  predecessors  'merely  touched 
on,  Senior  has  made  the  centre  of  a  well-constructed  theory  of 

1  See  above,  p.  71.  2  See  above,  p.  192. 

3  Principles  of  Political  Economy,  London,  1833. 


272  THE  ABSTINENCE   THEORY  BOOK  iv 

interest :  and  whatever  we  may  think  of  the  correctness  of  its 
conclusions,  we  cannot  deny  it  this  credit  that,  among  the  con- 
fused theories  of  that  time,  it  was  remarkable  for  its  systematic 
grasp,  its  consistent  logic,  and  the  thorough  manner  in  which 
it  puts  its  materials  to  the  best  advantage.  An  epitome  of  the 
doctrine  will  confirm  this  judgment. 

Senior  distinguishes  between  two  "  primary  "  instruments 
of  production,  labour  and  natural  agents.  But  these  cannot 
attain  to  complete  efficiency  if  they  are  not  supported  by  a 
third  element.  This  third  element  Senior  calls  Abstinence,  by 
which  he  means  "  the  conduct  of  a  person  who  either  abstains 
from  the  unproductive  use  of  what  he  can  command,  or 
designedly  prefers  the  production  of  remote  to  that  of  immediate 
results"  (p.  58). 

His  explanation  why  he  does  not  take  the  usual  course  of 
pronouncing  capital  to  be  the  third  element  in  production 
is  rather  ingenious.  Capital  is,  he  says,  not  a  simple  original 
instrument ;  it  is  in  most  cases  itself  the  result  of  the 
co-operation  of  labour,  natural  agents,  and  abstinence.  Con- 
sequently, if.  we  wish  to  give  a  name  to  the  peculiar  element — 
the  element  separate  from  the  productive  powers  of  labour  and 
nature — which  becomes  active  in  capital,  and  stands  in  the  same 
relation  to  profit  as  labour  stands  to  wage,  we  cannot  name 
anything  but  abstinence  (p.  59). 

Of  the  manner  in  which  this  element  takes  part  in  the 
accumulation  of  capital,  and  at  the  same  time,  indirectly,  in 
the  results  of  production,  Senior  repeatedly  gives  ample  illus- 
trations. I  give  one  of  the  shortest  in  his  own  words : — 

"  In  an  improved  state  of  society  the  commonest  tool  is 
the  result  of  the  labour  of  previous  years,  perhaps  of  previous 
centuries.  A  carpenter's  tools  are  among  the  simplest  that 
occur  to  us.  But  what  a  sacrifice  of  present  enjoyment  must 
have  been  undergone  by  the  capitalist  who  first  opened  the 
mine  of  which  the  carpenter's  nails  and  hammer  are  the 
product !  How  much  labour  directed  to  distant  results  must 
have  been  employed  by  those  who  formed  the  instruments 
with  which  the  mine  was  worked  !  In  fact,  when  we  consider 
that  all  tools,  except  the  rude  instruments  of  savage  life,  are 
themselves  the  product  of  earlier  tools,  we  may  conclude  that 
there  is  not  a  nail  among  the  many  millions  annually  fabricated 


CHAP,  i  SENIOR'S  STA  TEMENT  273 

in  England  which  is  not  to  a  certain  degree  the  product  of 
some  labour  for  the  purpose  of  obtaining  a  distant  result,  or, 
in  our  nomenclature,  of  some  abstinence  undergone  before  the 
conquest,  or  perhaps  before  the  Heptarchy"  (p.  68). 

Now  the  "  sacrifice, "  which  lies  in  the  renunciation  or 
postponement  of  enjoyment,  demands  indemnification.  This 
indemnification  consists  in  the  profit  of  capital.  But  admitting 
this  one  must  ask,  In  the  economical  world  is  the  capitalist 
able  to  enforce  what  may  be  called  his  moral  claim  on  indemni- 
fication ?  To  this  important  question  Senior  gives  the  answer 
in  his  theory  of  price. 

The  exchange  value  of  goods  depends,  according  to  Senior, 
partly  on  the  usefulness  of  the  goods,  partly  on  the  limitation 
of  their  supply.  In  the  majority  of  goods  (exception  being 
made  of  those  in  which  any  natural  monopoly  comes  into  play) 
the  limit  of  supply  consists  only  in  the  difficulty  of  finding 
persons  who  are  willing  to  submit  to  the  costs  necessary  for 
making  them.  In  so  far  as  the  costs  of  production  determine  the 
amount  of  supply  they  are  the  regulator  of  exchange  value; 
and  indeed  chiefly  in  this  way,  that  the  costs  of  production  of 
the  buyer — that  is,  the  sacrifice  with  which  the  buyer  could  him- 
self produce  or  procure  the  goods — constitute  the  "  maximum 
of  price,"  and  the  cost  of  production  of  the  seller  the  "  minimum 
of  price."  But  these  two  limits  approximate  each  other  in  the 
case  of  that  majority  of  goods  which  come  under  free  com- 
petition. In  their  case  therefore  the  costs  of  production  simply 
make  up  a  sum  that  determines  the  value. 

But  the  costs  of  production  consist  of  the  sum  of  tlie  labour 
and  abstinence  requisite  for  the  production  of  goods.  In  this 
sentence  we  come  to  the  theoretical  connection  between  the 
doctrine  of  interest  and  that  of  price.  If  the  sacrifice 
Abstinence  is  a  constituent  part  of  the  costs  of  production,  and 
these  costs  of  production  regulate  value,  the  value  of  goods 
must  always  be  great  enough  to  leave  a  compensation  for  the 
abstinence.  In  this  way  the  surplus  value  of  products  of 
capital,  and  with  it  natural  interest  on  capital,  is  fornially 
explained. 

To  this  last  exposition  Senior  adds  a  criticism  of  the  interest 
theory  of  several  of  his  predecessors  which  almost  deserves  to 
be  called  classical.  He  exposes  among  other  things  in  a  forcible 

T 


274  THE  ABSTINENCE  TtfEORY  BOOK  iv 

way  the  blunder  which  Malthus  had  committed  in  putting 
profit  among  costs.  But  not  content  with  criticising,  he  ex- 
plains very  beautifully  how  Malthus  had  fallen  into  the  mistake. 
Malthus  had  rightly  perceived  that,  beyond  the  sacrifice  of 
labour,  there  is  another  sacrifice  made  in  production.  But  since 
there  was  no  term  by  which  to  designate  it,  he  had  called  the 
sacrifice  by  the  name  of  its  compensation,  in  the  same  way  as 
many  people  call  wage  of  labour  (which  is  the  compensation 
for  the  sacrifice  of  labour)  a  constituent  part  of  cost,  instead 
of  calling  the  labour  itself  by  that  name.  Torrens,  again,  who 
had  already  blamed  Malthus  for  his  mistake,  had  himself 
committed  a  sin  of  omission.  He  had  rightly  eliminated 
"  profit "  from  the  costs  of  production,  but  was  himself  quite 
unable  to  fill  the  gap. 


CHAPTER   II 

CRITICISM   OF   SENIOR 

SINCE  the  first  formulation  which  the  Abstinence  theory 
received  from  Senior  is  still  the  best,  we  shall  be  able  to 
form  a  critical  judgment  on  the  whole  subject  most  suitably 
by  taking  up  Senior's  theory.  Before  stating  my  own  views,  I 
think  it  advisable  to  mention  certain  other  criticisms  which 
have  obtained  a  wide  currency  in  our  science,  and  in  which,  I 
believe,  Senior's  doctrine  has  been  judged  much  too  harshly. 
To  begin  with  a  late  critique.  Pierstorff,  in  his  able  Lehre 
vom  Unternehrnerg&mnn,  expresses  himself  in  terms  of  extreme 
disapprobation  of  Senior's  theory.  He  goes  so  far  as  to 
declare  that  Senior's  way  of  looking  at  things,  in  contrast  to 
that  of  his  predecessors,  indicates  a  degeneration,  a  renunciation 
of  earnest  scientific  research;  and  charges  him  with  having 
"substituted  for  the  economical  basis  of  phenomena  an 
economical  and  social  theory  cut  to  suit  his  purpose  "  (p.  47). 

I  must  confess  that  I  scarcely  understand  this  expression 
of  opinion,  particularly  as  coming  from  a  historian  of  theory 
who  should  know  how  to  estimate  excellence  even  when  it  is 
purely  relative.  Senior's  theory  of  interest  is  infinitely  superior 
to  that  of  his  predecessors  in  depth,  systematic  treatment, 
and  scientific  earnestness.  The  words  "  renunciation  of  earnest 
scientific  research "  into  the  interest  problem  might  apply  to 
the  methods  of  such  men  as  Eicardo  or  Malthus,  M'Culloch 
or  James  Mill  These  writers  sometimes  do  not  put  the 
problem  at  all ;  sometimes  solve  it  by  an  obvious  petitio  princi- 
pii ;  sometimes  solve  it  by  peculiarly  absurd  methods.  Even 
Lauderdale,  whom  Pierstorff  unfortunately  has  not  discussed, 
notwithstanding  an  earnest  attempt  at  its  solution,  remains 


276  THE  ABSTINENCE   THEORY:    CRITICISM    BOOK  iv 

standing  in  the  outer  courts  of  the  problem,  and  by  a  gross  mis- 
understanding entirely  fails  to  explain  the  interest  phenomenon 
by  his  value  theory.  Unlike  him,  Senior,  with  deep  insight, 
has  recognised  not  only  that  there  is  a  problem,  but  also  the 
direction  in  which  it  is  to  be  solved,  and  where  the  difficulties 
of  the  solution  lie.  Setting  aside  all  sham  solutions,  he  goes 
to  the  heart  of  the  matter,  to  its  foundation  in  the  surplus 
value  of  products  over  expenditure  of  capital ;  and  if  he  has 
not  found  the  whole  truth,  it  certainly  is  not  for  want  of 
scientific  earnestness.  One  would  have  thought  that  the 
pointed  and  well  weighed  critical  observations  which  Senior 
so  plentifully  intersperses  with  his  text  should  have  protected 
him  from  so  harsh  a  judgment. 

Just  as  wide  of  the  mark  seem  to  me  the  well-known 
words  in  which  Lassalle,  twenty  years  ago,  in  his  tumultu- 
ously  eloquent  but  absurdly  rhetorical  way,  jeered  at  Senior's 
doctrine:  "The  profit  of  capital  is  the  'wage  of  abstinence.' 
Happy,  even  priceless  expression  !  The  ascetic  millionaires  of 
Europe !  Like  Indian  penitents  or  pillar  saints  they  stand  :  on 
one  leg,  each  on  his  column,  with  straining  arm  and  pendu- 
lous body  and  pallid  looks,  holding  a  plate  towards  the  people 
to  collect  the  wages  of  their  Abstinence.  In  their  midst, 
towering  up  above  all  his  fellows,  as  head  penitent  and  ascetic, 
the  Baron  Eothschild  !  This  is  the  condition  of  society !  how 
could  I  ever  so  much  misunderstand  it ! " l 

This  brilliant  attack  notwithstanding,  I  believe  that  there 
is  a  core  of  truth  in  Senior's,  doctrine.  It  cannot  be  denied 
that  the  making,  as  well  as  the  preservation  of  every  capital, 
does  demand  an  abstinence  from  or  postponement  of  the 
gratification  of  the  moment ;  and  it  appears  to  me  to  admit 
of  as  little  doubt  that  this  postponement  is  considered  in, 
and  enhances  the  value  of  those  products  that,  under  capitalist 
production,  cannot  be  obtained  without  more  or  less  of  such 
postponement.  If,  e.g.  two  commodities  have  required  for  their 
production  exactly  the  same  amount  of  labour,  say  100  days, 
and  that  one  commodity  is  ready  for  use  immediately  that 
the  labour  is  finished,  while  the  other — say  new  wine — must 
lie  for  a  year ;  experience  certainly  shows  that  the  commodity 
which  becomes  ready  for  use  later  will  stand  higher  in  price 

1  Kapital  und  Arbeit,  Berlin,  1864,  p.  110. 


CHAP,  ii  SACRIFICE  OF  POSTPONEMENT  277 

than   that  which   is   ready  at   once,  by   something   like   the 
amount  of  interest  on  the  capital  expended. 

Now  I  have  no  doubt  that  the  reason  of  this  enhance- 
ment is  nothing  else  than  that  there  must  be  in  this  case 
a  postponement  of  the  gratification  obtainable  from  the.  labour 
performed.  For  if  the  commodity  immediately  ready  for 
use  and  that  ready  later  on  were  to  stand  equally  high  in 
value,  everybody  would  prefer  to  employ  his  100  days  in  that 
labour  which  pays  its  wages  immediately.  This  tendency  is 
bound  to  call  forth  an  increased  supply  of  the  goods 
immediately  ready  for  use,  and  this  again  must  bring  down 
their  price  as  compared  with  that  of  the  goods  ready  later 
on.  And  as  the  wages  of  labour  have  a  tendency  to  equalise 
themselves  over  all  branches  of  production,  in  the  end  there 
is  assured  to  the  producers  of  these  later  goods  a  plus  over  the 
normal  payment  of  labour ;  in  other  words,  an  interest  on 
capital 

But  it  is  just  as  certain — and  on  this  ground  Lassalle  is  for 
the  most  part  right  as  against  Senior — that  the  existence  and  the 
height  of  interest  by  no  means  invariably  correspond  with  the 
existence  and  the  height  of  a  •"  sacrifice  of  abstinence."  Interest, 
in  exceptional  cases,  is  received  where  there  has  been  no  indi- 
vidual sacrifice  of  abstinence.  High  interest  is  often  got  where 
the  sacrifice  of  the  abstinence  is  very  trifling — as  in  the  case 
of  Lassalle's  millionaire — and  low  interest  is  often  got  where 
the  sacrifice  entailed  by  the  abstinence  is  very  great.  The 
hardly  saved  sovereign  which  the  domestic  servant  puts  in  the 
savings  bank  bears,  absolutely  and  relatively,  less  interest  than 
the  lightly  spared  thousands  which  the  millionaire  puts  to 
fructify  in  debenture  and  mortgage  funds.  These  phenomena 
fit  badly  into  a  theory  which  explains  interest  quite  universally 
as  a  "  wage  of  abstinence,"  and  in  the  hands  of  a  man  who 
understood  polemical  rhetoric  so  well  as  Lassalle  they  only 
furnished  so  many  pointed  weapons  of  attack  against  that 
theory. 

After  much  consideration  I  am  inclined  to  think  that  the 
actual  defects  from  which  Senior's  theory  suffers  may  be  reduced 
to  three. 

First,  Senior  has  made  too  sweeping  a  generalisation  on  an 
idea  quite  right  in  itself,  and  has  used  it  too  much  as  a  type. 


278  THE  ABSTINENCE  THEORY:    CRITICISM    BOOK  iv 

There  is  no  doubt  in  my  mind  that  the  element,  postponement 
of  gratification,  which  Senior  puts  in  the  foreground,  does  as  a 
fact  exert  a  certain  influence  on  the  origination  of  interest. 
But  that  influence  is  neither  so  simple,  nor  so  direct,  nor  so 
exclusive  as  to  permit  of  interest  being  explained  as  merely 
a  "  wage  of  abstinence."  More  exact  proof  of  this  is  not  pos- 
sible here,  and  must  be  left  for  my  second  volume. 

Second,  Senior  has  expressed  that  part  of  his  theory  which 
is  substantially  correct  in  a  fashion  at  all  events  open 
to  attack.  I  consider  it  a  logical  blunder  to  represent  the 
renunciation  or  postponement  of  gratification,  or  abstinence,  as 
a  second  independent  sacrifice  in  addition  to  the  labour  sacri- 
ficed in  production. 

Perhaps  the  best  way  of  treating  this  somewhat  difficult 
subject  will  be  to  put  it  in  the  form  of  a  concrete  example, 
and  then  try  to  grasp  the  principle. 

Take  the  case  of  a  man  living  in  the  country  who  is  con- 
sidering in  what  kind  of  labour  he  should  employ  his  day. 
There  are,  perhaps,  a  hundred  different  courses  open  to  him. 
To  name  only  some  of  the  simplest — he  could  fish,  or  shoot,  or 
gather  fruit.  All  three  kinds  of  employment  agree  in  this, 
that  their  result  follows  immediately, — even  by  the  evening  of 
the  same  work-day.  Suppose  that  our  country  friend  decides 
on  fishing,  and  brings  home  at  night  three  fish.  What  sacri- 
fice has  it  cost  him  to  obtain  them  ? 

If  we  leave  out  of  account  the  trifling  wear  and  tear  of  the 
fishing  gear,  it  has  cost  him  evidently  one  day's  work,  and  noth- 
ing else.  It  is  possible,  however,  that  he  looks  at  this  sacrifice 
from  another  point  of  view.  It  is  possible  that  he  measures 
it  by  the  gratification  he  might  have  got  if  he  had  spent  his 
work-day  otherwise,  which  gratification  he  must  now  do  with- 
out. He  may  calculate  thus :  If  I  had  spent  to-day  in  shoot- 
ing instead  of  fishing  I  might  have  shot  three  hares,  and  I 
must  now  do  without  the  gratification  obtainable  from  these. 

I  believe  that  this  way  of  reckoning  sacrifice  is  not  in- 
correct. Here  the  man  simply  looks  at  work  as  a  means  to 
an  end,  and  taking  no  notice  of  the  mean — the  primary  sacri- 
fice of  work — fixes  his  attention  on  the  end  which  was  sacri- 
ficed through  the  mean.  It  is  a  method  of  calculation 
very  common  in  economic  life.  Say  that  I  have  definitely  set 


CHAP,  n  THE  ALTERNATIVE  SACRIFICE  279 

aside  £30  for  expenditure,  but  am  hesitating  between  two 
modes  of  spending  it.  In  the  end  I  make  up  my  mind  to 
spend  it  on  a  pleasure  trip  instead  of  the  purchase  of  a  Persian 
carpet.  Evidently  the  real  sacrifice  which  the  pleasure  trip 
will  cost  me  may  be  represented  under  the  form  of  the  Persian 
carpet  which  I  have  to  do  without. 

In  any  case  it  appears  to  me  obvious  that,  in  reckoning 
the  sacrifice  made  for  any  economic  end,  the  direct  sacrifice 
in  means — that  sacrifice  which  is  first  made — and  the  indirect 
sacrifice,  which  takes  the  shape  of  other  kinds  of  advantage 
that  might  have  been  obtained  in  other  circumstances  by  the 
means  sacrificed,  can  be  calculated  only  alternatively  and  never 
cumulatively.  I  may  consider  the  sacrifice  of  my  pleasure  trip 
to  be  either  the  £30  which  it  has  directly  cost  me,  or  the 
Persian  carpet  which  it  has  indirectly  cost  me,  but  never  as 
the  £30  and  the  carpet.  Just  in  the  same  way  our  rustic 
may  consider,  as  the  sacrifice  which  the  catching  of  the  three 
fish  costs  him,  either  the  day's  work  directly  expended,  or  the 
three  hares  indirectly  sacrificed  (or,  say,  the  gratification  he 
gets  from  eating  them),  but  never  the  day's  work  and  the 


gratification  obtained  through  shooting  the  hares. 
I  think  is  clear. 

But  besides  these  occupations,  which  recompense  him  for 
his  day's  work  at  the  end  of  the  day,  there  are  others  open  to 
our  labourer  which  produce  a  result  that  cannot  be  enjoyed 
till  a  later  date.  He  might,  e.g.  sow  wheat,  getting  the  produce 
of  it  after  a  year's  time  ;  or  he  might  plant  fruit  trees,  from 
which  he  could  have  no  return  for  ten  years.  Suppose  he 
chooses  the  latter.  If  we  again  leave  out  of  account  the  laud 
and  the  trifling  wear  and  tear  of  tools,  what  has  he  sacrificed 
to  obtain  the  fruit  trees  ? 

To  me  there  seems  no  doubt  about  the  answer.  He  has 
sacrificed  a  day's  work,  and  nothing  more.  Or,  if  the  indirect 
way  of  computation  be  preferred,  instead  of  the  day's  work  he 
may  calculate  the  other  kinds  of  gratification  that  might  have 
been  got  by  spending  the  day  in  other  ways — say  the  immediate 
enjoyment  of  three  fish,  or  of  three  hares,  or  of  a  basket  of  fruit. 
But  at  all  events  it  seems  to  me  obvious  in  this  case  also,  that, 
if  the  gratification  which  might  have  been  got  through  the  work 
is  reckoned  as  sacrifice,  then  not  the  smallest  portion  of  the  work 


280  THE  ABSTINENCE   THEORY:    CRITICISM    BOOK  iv 

itself  can  be  reckoned  in  the  sacrifice ;  while,  if  the  work  is 
reckoned  as  sacrifice,  there  cannot  be  added  to  that  in  the 
calculation  the  smallest  fragment  of  the  other  kinds  of  enjoy- 
ment that  were  renounced.  To  do  otherwise  would  be  to 
make  a  double  reckoning,  which  would  be  just  as  false  as  if 
the  man  in  our  former  illustration  had  reckoned  the  cost  of 
the  pleasure  trip  as  the  £30  actually  paid,  and  besides  as  the 
Persian  carpet  which  he  might  have  bought  with  the  £30. 

It  is  a  double  calculation  of  this  kind  that  Senior  has 
made.  He  has  not  done  so,  I  admit,  in  the  gross  way  of 
calculating,  in  addition  to  the  labour,  the  entire  gratification 
he  might  have  had  from  the  labour;  but  in  reckoning  the 
postponement  or  abstinence  from  gratification  independently 
of  the  labour  he  has  gone  farther  than  was  allowable.  For 
it  is  clear  that  in  the  sacrifice  of  labour  is  already  included 
the  sacrifice  of  the  whole  advantage  that  might  have  been  got 
from  employing  the  labour  in  other  ways, — the  whole  advantage, 
containing  all  the  partial  or  secondary  shades  of  advantage  that 
may  depend  on  the  principal  advantage.  The  man  who  sacri- 
fices £30  on  a  pleasure  trip  sacrifices,  not  in  addition  to  but 
in  the  £30,  both  the  Persian  carpet  that  he  might  have  bought 
with  it  and  the  satisfaction  which  he  might  have  found  in  its 
possession  ;  sacrifices  too,  among  other  things,  the  special  advan- 
tage he  might  have  had  in  the  durability  of  this  possession,  and 
the  length  of  time  over  which  the  gratification  was  spread.  And 
just  in  the  same  way  the  labourer  who  sacrifices  one  day  of 
work  of  the  year  1889  in  the  planting  of  trees,  makes  a  saoii- 
fice,  in  and  not  in  addition  to,  'this  day  of  work,  not  only  of  the 
three  fish  which  he  might  have  caught  by  the  day's  labour,  but 
also  of  the  peculiar  enjoyment  which  he  has,  say,  in  a  fish- 
dinner  ;  as  also  of  the  advantage  which  springs  from  the  fact 
that  he  might  have  had  this  gratification  in  the  year  1889. 
The  special  reckoning  of  the  postponement  of  gratification, 
therefore,  contains  a  double  calculation. 

It  is  not  perhaps  too  much  to  hope  that  most  of  my 
readers  will  agree  with  the  foregoing  arguments.  Nevertheless 
I  cannot  consider  the  subject  yet  threshed  out.  There  is  no 
doubt  that  Senior's  way  of  putting  the  matter  has  something 
very  fascinating  and  persuasive  about  it,  and  if  the  case  made 
use  of  in  our  illustration  is  put  in  a  certain  light  favourable  to 


CHAP,  ii  A  DOUBLE  CALCULATION  281 

Senior's  conception,  the  argument  against  me  may  appear 
absolutely  convincing.  This  argument  I  have  still  to  reckon 
with. 

Put  parallel  cases  as  follows.  If  I  employ  to-day  in 
catching  fish,  these  fish  cost  me  one  day  of  labour.  That  is 
clear.  But  if  I  employ  to-day  in  planting  fruit  trees,  which 
will  not  bear  fruit  for  ten  years'  time,  then  not  only  have  I 
"  taken  it  out "  of  myself  (to  use  a  significant  colloquialism) 
for  a  whole  day,  but,  over  and  above  that.  I  have  to  wait  for 
ten  years  for  any  result  from  my  labour,  although  that  waiting 
perhaps  costs  me  much  self-denial  and  mental  pain.  Therefore 
it  would  seem  that  in  this  latter  act  I  make  a  sacrifice  which 
is  more  than  a  day  of  labour;  it  is  the  exertion  and  toil  of 
one  day,  and  besides  that,  the  burden  of  postponing  the  result 
of  my  work  for  ten  years. 

Plausible  as  this  argument  is,  its  basis  is  none  the  less 
fallacious.  Let  me  first  show,  by  following  it  out  to  some 
of  its  conclusions,  that  there  is  a  fallacy,  and  then  point  out 
the  source  of  the  fallacy.  Later  on  I  shall  have  another 
opportunity  of  reviewing  all  that  has  been  said  and  reducing 
it  to  principles. 

Imagine  the  following  case.  I  work  for  a  whole  day  at 
the  planting  of  fruit  trees  in  the  expectation  that  they  will 
bear  fruit  for  me  in  ten  years.  In  the  night  following  comes 
a  storm  and  entirely  destroys  the  whole  plantation.  How 
great  is  the  sacrifice  which  I  have  made,  as  it  happens,  in 
vain  ?  I  think  every  one  will  say — a  lost  day  of  work,  and 
nothing  more.  And  now  I  put  the  question,  Is  my  sacrifice 
in  any  way  greater  that  the  storm  does  not  come,  and  that 
the  trees,  without  any  further  exertion  on  my  part,  bear  fruit  in 
ten  years  ?  If  I  do  a  day's  work  and  have  to  wait  ten  years 
to  get  a  return  from  it,  do  I  sacrifice  more  than  if  I  do  a 
day's  work,  and,  by  reason  of  the  destructive  storm,  must  wait 
to  all  eternity  for  its  return  ?  It  is  impossible  to  make  such 
an  assertion.  And  yet  Senior  would  have  it  so ;  for  while  in 
the  first  case  the  sacrifice  is  stated  to  be  a  day's  work  and 
nothing  more,  in  the  second  case  it  is  a  day's  work  plus  a  ten 
years'  abstinence  from  its  result !  What  a  singular  position 
too,  according  to  Senior's  view,  must  the  progression  of  sacrifice 
attain  as  the  time  of  use  recedes  !  If  labour  immediately  pays 


282  THE  ABSTINENCE  THEORY:    CRITICISM    BOOK  iv 

its  own  wages  the  sacrifice  is  only  the  labour  expended.  If 
it  pays  them  in  a  year,  the  sacrifice  is  labour  plus  a  year's 
abstinence.  If  it  pays  them  in  two  years,  the  sacrifice  is 
labour  plus  two  years'  abstinence.  If  it  pays  them  twenty 
years  afterwards,  then  the  sacrifice  grows  to  labour  plus 
twenty  years'  abstinence.  And  if  it  never  pays  them  at  all  ? 
Must  not,  then,  the  sacrifice  of  abstinence  reach  its  highest 
conceivable  point,  infinity,  and  form  the  climax  of  the  upward 
progression  ?  Oh  no  !  Here  the  sacrifice  of  abstinence  sinks 
to  zero ;  the  labour  is  the  only  thing  counted  as  sacrifice,  and 
the  total  sacrifice  is  not  the  greatest,  but  the  least  in  the 
entire  series ! 

I  think  that  these  conclusions  plainly  indicate  that  in  all 
cases  the  only  real  sacrifice  consists  in  the  labour  put  forth,  and 
that,  if  we  thought  ourselves  compelled  to  acknowledge  a  second 
sacrifice  besides  that,  viz.  the  postponement  of  gratification,  we 
must  have  been  misled  by  a  specious  presentation  of  the  case. 

But  I  must  confess  that  the  mistake  is  one  we  are  very 
apt  to  fall  into.  What  is  it  that  misleads  us  ? 

The  source  of  it  is  simply  this,  that  the  element  of  Time  is 
not  really  indifferent ;  only  it  exerts  its  influence  in  a  some- 
what different  way  from  that  imagined  by  Senior  and  by  people 
generally.  Instead  of  affording  material  for  a  second  and  inde- 
pendent sacrifice,  its  importance  rather  lies  in  determining  the 
amount  of  the  one  sacrifice  actually  made.  To  make  this 
quite  clear  I  must  run  the  risk  of  being  a  little  tedious. 

The  nature  of  all  economic  sacrifices  that  men  make 
consists  in  some  loss  of  wellbeing  which  they  suffer ;  and  the 
amount  of  sacrifice  is  measured  by  the  amount  of  this  loss. 
It  may  be  of  two  kinds :  of  a  positive  kind,  where  we  inflict 
on  ourselves  positive  injury,  pain,  or  trouble ;  or  of  a  negative 
kind,  where  we  do  without  a  happiness  or  a  satisfaction  which 
we  otherwise  might  have  had.  In  the  majority  of  economical 
sacrifices  which  we  make  to  gain  a  definite  useful  end,  the 
only  question  is  about  one  of  these  kinds  of  loss,  and  here  the 
calculation  of  the  sacrifice  undergone  is  very  simple.  If  I  lay 
out  a  sum  of  money,  say  £30,  for  any  one  useful  end,  my 
sacrifice  is  calculated  simply  by  the  gratification  which  I 
might  have  got  by  spending  the  £30  in  other  ways,  and 
which  I  must  now  do  without. 


CHAP,  ii      TWO  WAYS  OF  CALCULATING  SACRIFICE        283 

It  is  otherwise  with  the  sacrifice  of  labour.  Labour 
presents  two  sides  to  economical  consideration.  On  the  one 
hand  it  is,  in  the  experience  of  most  men,  an  effort  connected 
with  an  amount  of  positive  pain,  and  on  the  other,  it  is  a 
mean  to  the  attainment  of  many  kinds  of  enjoyment.  There- 
fore the  man  who  expends  labour  for  a  definite  useful  end 
makes  on  the  one  hand  the  positive  sacrifice  of  pain,  and  on 
the  other,  the  negative  sacrifice  of  the  other  kinds  of  enjoy- 
ment that  might  have  been  obtained  as  results  of  the  same 
labour.  The  question  now  is,  Which  is  the  correct  way,  in 
this  case,  of  calculating  the  sacrifice  made  for  the  concrete 
useful  end  ? 

The  point  we  have  to  consider  is,  What  would  have  been 
the  position  as  regards  our  pleasure  and  pain  if  we  had  not 
expended  the  labour  with  a  view  to  this  particular  end,  but 
had  disposed  of  it  in  some  other  reasonable  way  ?  The 
difference  between  the  two  evidently  shows  the  loss  of  well- 
being  which  the  attainment  of 'our  useful  purpose  costs  us.  If 
we  make  use  of  this  method  of  estimating  difference,  we  may 
very  soon  convince  ourselves  that  the  sacrifice  made  by  labour 
is  sometimes  to  be  measured  by  the  positive  pain,  sometimes 
by  the  negative  loss  of  gratification,  but  never  by  both  at  once. 

The  question  then  comes  to  this,  Whether,  if  we  had  put 
forth  the  day's  labour  otherwise,  we  could  have  got  a  satisfaction 
greater  than  the  pain  which  the  one  day's  labour  causes  us, 
or  not  ?  Suppose  we  feel  the  pain  of  a  day's  labour  as  an 
amount  which  may  be  indicated  by  the  number  10.  We 
actually  employ  the  day  in  catching  three  fish,  and  these  fish 
give  us  a  gratification  expressed  by  the  number  15.  And  we 
ask  what  is  the  amount  of  sacrifice  which  the  catching  of  the 
three  fish  costs  us.  What  we  shall  have  to  decide  is,  whether,  if 
we  had  not  gone  fishing,  it  would  have  been  possible  to  us  to 
get  by  a  day's  work  another  kind  of  satisfaction  greater  than 
the  number  10.  If  no  such  possibility  is  open  to  us — say 
that  shooting  would  only  bring  us  a  gratification  represented 
by  the  number  8,  while  the  labour-pain  was,  as  before,  10 — 
then  evidently  we  should  either  fish  or  remain  idle.  What  our 
three  fish  cost  us  in  this  case  is  the  labour-pain  indicated  by 
the  number  10,  which  pain  we  have  undergone  for  the  sake  of 
the  fish,  and  which  pain  we  would  otherwise  not  have  under- 


284  THE  ABSTINENCE  THEORY:    CRITICISM    BOOK  iv 

gone.  There  is  no  question  here  of  any  loss  of  other  kinds  of 
enjoyment,  for  the  simple  reason  that  we  could  not  have  got 
them.  If,  on  the  other  hand,  it  is  possible,  by  labouring  for  a 
day  at  other  kinds  of  work,  to  get  a  gratification  greater  than 
the  pain  represented  by  the  number  10 — if  we  could,  e.g.  by 
a  day's  shooting  obtain  three  hares  of  the  value  of  12,  then  it  is 
quite  reasonable  to  expect  that  we  should  not  in  any  case 
remain  idle,  but  possibly  go  shooting  instead  of  fishing.  What 
our  fish  really  cost  us  now  is  not  the  positive  labour-pain 
expressed  by  the  number  10 — for  this  we  should  have  under- 
gone at  any  rate — but  the  negative  loss  of  an  enjoyment 
which  we  might  have  had,  indicated  by  the  number  12. 
But  of  course  we  must  never  calculate  the  want  of  enjoyment 
and  the  pain  of  labour  cumulatively;  for  if  we  had  not 
preferred  catching  fish,  we  could  not  have  spared  ourselves  the 
pain  of  labour  and  yet  have  had  the  gratification  of  shooting. 
And  just  as  little,  if  we  choose  to  fish,  do  we  by  that  choice 
make  a  double  sacrifice. 

What  has  been  said  gives  us  the  materials  for  a  general  rule 
which  practical  men  are  in  the  habit  -of  applying  with  perfect 
confidence.  It  may  be  put  in  the  following  words. 

If  we  apply  labour  to  a  useful  end,  the  sacrifice  made  in 
doing  so  is  always  to  be  reckoned  to  the  account  of  that  one  of 
the  two  kinds  of  loss  of  wellbeing  which  is  the  greater  in 
amount ;  to  labour-pain,  if  there  is  no  kind  of  gratification  in 
prospect  which  outweighs  it;  to  gratification,  where  there  is 
the  possibility  of  such ;  but  never  in  both  at  the  same  time. 

And  further,  since  in  the  economic  life  of  to-day  we  have 
an  infinite  number  of  possibilities  of  turning  our  work  to  fruit- 
ful account,  the  first  of  these  two  cases  almost  never  occurs. 
At  the  present  time,  then,  we  estimate  by  far  the  greater 
number  of  cases  not  by  the  pain  of  work,  but  by  the  profit 
or  advantage  we  have  renounced. 

Here  we  huve  at  last  reached  the  point  where  we  see  the 
real  influence  of  the  element  Time  on  the  amount  of  the  sacri- 
fice. It  is  a  fact — the  grounds  on  which  it  rests  do  not  con- 
cern us  here — that  in  circumstances  otherwise  equal  we  prefer 
a  present  enjoyment  to  a  future.  Consequently,  if  we  have 
to  choose  between  applying  a  means  of  satisfaction,  say  labour, 
to  the  satisfaction  of  a  present  want,  and  applying  it  towards 


CHAP,  ii        TRUE  CALCULATION  OF  SACRIFICE  286 

the  satisfaction  of  a  future  want,  the  attraction  of  the  immediate 
gratification  will  make  it  difficult  to  decide  in  favour  of  the 
future  use.  If,  however,  we  do  decide  for  the  future  use,  in 
measuring  the  amount  of  sacrifice  made  for  it  by  the  greatness 
of  the  use  foregone,  the  attraction  of  the  moment  which  adheres 
to  the  use  foregone  will  weigh  down  the  scale,  and  make  our 
sacrifice  appear  harder  than  it  would  otherwise  have  appeared. 
It  is  not  that  we  make  a  second  sacrifice  in  this.  Whether  we 
have  to  choose  between  two  present  or  two  future  uses,  or 
between  a  present  and  a  future  use,  we  always  make  the  one 
sacrifice  only,  labour.  But  since,  according  to  our  analysis, 
we  usually  measure  the  amount  of  the  sacrifice  by  the  amount 
of  the  use  foregone,  the  attraction  of  the  earlier  satisfaction 
is  considered  and  has  its  influence  on  this  valuation,  and 
helps  to  make  the  calculation  of  the  one,  sacrifice  higher  than 
it  would  otherwise  have  been.  This  is  the  true  state  of  the 
facts  to  which  Senior  in  his  theory  gave  a  faulty  construction.1 

The  reader  will,  I  trust,  pardon  me  keeping  him  so  long 
at  this  abstract  discussion.  From  the  point  of  theory,  how- 
ever, it  contains  the  weightiest  arguments  against  a  doctrine 
that  must  be  taken  seriously, — a- doctrine  which  up  till  now 
has  often  been  rejected,  but  never,  in  my  opinion,  refuted. 
For  myself,  I  hold  it  the  lesser  evil  to  be  over-scrupulous  in 
inquiry  before  passing  sentence,  than  to  pass  sentence  without 
full  inquiry. 

Lastly,  the  third  fault  of  Senior's  theory  seems  to  me  that 
he  has  made  his  interest  theory  part  of  a  theory  of  value  in 
which  he  explains  the  value  of  goods  by  their  costs. 

Now,  even  admitting  the  correctness  of  this  theory,  the  "la\\T 
of  costs "  avowedly  holds  only  as  regards  one  class  of  goods, 
those  which  can  be  reproduced  in  any  quantity  at  will.  In  so 

1  Even  in  that  minority  of  cases  where  the  sacrifice  of  labour  is  measured  in 
pain  of  labour,  the  time  element  of  postponement  of  gratification  cannot  form  a 
second  and  independent  sacrifice.  For  the  pain  of  labour  only  enters  into  the 
valuation,  as  we  have  seen,  when  the  pain  in  question  is  greater  than  any  kind  of 
use  which  can  be  got  out  of  the  labour,  inclusive  of  all  the  attractions  of  the 
moment  that  may  happen  to  be  in  it ;  and  when,  consequently,  the  choice  can 
only  reasonably  be  thought  of  as  lying  between  the  concrete  future  uses,  towards 
which  the  labour  would  actually  be  directed,  and  entire  cessation  from  labour. 
Since  there  is  here  no  question  of  any  other  kind  of  earlier  enjoyment  of  goods, 
such  an  enjoyment  cannot  of  course  be,  in  any  way,  an  element  in  the  valuation 
of  sacrifice. 


286  THE  ABSTINENCE  THEORY:    CRITICISM    BOOK  iv 

far,  then,  as  Senior  makes  his  theory  of  interest  an  integral  part 
of  a  value  theory  which  is  merely  partial,  it  can  only  be,  in  the 
most  favourable  circumstances,  a  partial  interest  theory.  It 
might  explain  those  profits  that  are  made  in  the  production  of 
goods  reproducible  at  will,  but  logically  every  other  kind  of 
profit  would  escape  it  altogether. 

Senior's  Abstinence  theory  has  obtained  great  popularity 
among  those  economists  who  are  favourably  disposed  to 
interest.  It  seems  to  me,  however,  that  this  popularity  has 
been  due,  not  so  much  to  its  superiority  as  a  theory,  as  that  it 
came  in  the  nick  of  time  to  support  interest  against  the  severe 
attacks  that  had  been  made  on  it.  I  draw  this  inference  from 
the  peculiar  circumstance  that  the  vast  majority  of  its  later 
advocates  do  not  profess  it  exclusively,  but  only  add  elements 
of  the  Abstinence  theory  in  an  eclectic  way  to  other  theories 
favourable  to  interest.  This  is  a  line  of  conduct  which  points, 
on  the  one  hand,  to  a  certain  undervaluing  of  the  strength  of 
its  position  as  a  theory ;  its  advocates  do  not  hesitate  to  dis- 
credit it  rather  rudely  by  piling  up  along  with  it  a  great  many 
heterogeneous  and  contradictory  explanations.  And,  on  the  other 
hand,  it  points  to  a  preference  for  that  practical  and  political 
standpoint  which  is  satisfied  if  only  a  sufficient  number  of 
reasons  are  brought  forward  to  prove  the  legitimacy  of  interest, 
although  it  should  be  at  the  expense  both  of  unity  and  logic. 

Thus  we  shall  meet  the  majority  of  the  followers  of  Senior 
among  the  eclectics.  I  may  name,  provisionally,  among 
English  economists,  John  Stuart  Mill  and  the  acute  Jevons; 
among  French  writers,  Rossi,  Molinari,  and  Josef  Gamier; 
among  Germans,  particularly  Eoscher  and  his  numerous  follow- 
ing ;  then  Schiiz  and  Max  Wirth. 

Among  those  writers  who  hold  by  the  Abstinence  theory 
pure  and  simple,  I  merely  name  the  most  prominent.  Cairnes 
places  himself  essentially  at  Senior's  standpoint  in  his  spirited 
treatment  of  the  costs  of  production.1  The  Swiss  economist 
Cherbuliez 2  explains  interest  to  be  a  remuneration  for  the 
"  efforts  of  abstinence,"  and  so  stands  on  the  boundary  line 

1  Some  Leading  Principles  of  Political  Economy,  1874,  chap.  iii. 
•  Precis  de  la  Science  Economique,  Paris,  1862  ;  particularly  vol.  L  pp.  161, 
402,  etc. 


CHAP,  ii  77^  ECLECTIC  FOLLOWERS  287 

between  the  Abstinence  theory  and  a  peculiar  variety  of  those 
Labour  theories  which  we  have  to  discuss  in  the  next  book. 
In  Italian  literature  Wollemborg  has  lately  followed  the  lead 
of  Senior  and  Cairnes  in  acute  inquiry  into  the  nature  of  costs 
of  production.1  Among  the  Germans  is  Karl  Dietzel,  who, 
however,  touches  on  the  problem  only  occasionally  and 
cursorily.2 

None  of  these  writers  have  added  any  essentially  new 
feature  to  Senior's  Abstinence  theory,  and  it  is  not  necessary 
to  go  minutely  into  what  they  have  said  on  the  subject  But 
I  must  make  more  careful  mention  of  a  writer  whose  theory 
made  a  great  stir  in  its  day,  and  maintains  an  important 
influence  even  yet ;  I  mean  Frede'ric  Bastiat. 

1  Interne  al  Costo  Relative  di  Produzione,  etc.,  Bologna,  1882. 

2  System  der  Staatsanleihen,  Heidelberg,  1855,  p.  48  :  "  The  lender  of  capital 
bases  his  claim  on  compensation  for  the  using  of  the  capital  transferred  by  him, 
first,  on  the  fact  that  he  has  given  up  the  chance  of  giving  value  to  his  own 
labour  power  by  embodying  it  in  the  object ;  and  second,  that  he  has  refrained 
from  consuming  it,  or  its  value,  at  once,  in  immediate  enjoyment.     This  is  the 
ground  on  which  interest  on  capital  rests  ;  the  subject,  however,  has  no  further 
concern  for  us  in  this  place." 


W- 

V  ~- 


CHAPTER    III 

BASTIAT'S  STATEMENT 

BASTIAT'S  much  discussed  theory  of  interest  may  be  characterised 
as  a  copy  of  Senior's  Abstinence  theory  forced  into  the  forms 
of  Bastiat's  Value  theory,  and  thereby  much  deteriorated. 
The  fundamental  thought  in  each  is  identical.  The  post- 
ponement of  gratification,  which  Senior  calls  Abstinence, 
and  Bastiat  calls  sometimes  Delay,  sometimes  Privation,  is 
a  sacrifice  demanding  compensation.  But  beyond  this  they 
diverge  from  each  other  in  some  respects. 

Senior,  who  deduces  the  value  of  goods  from  their  cost  of 
production,  simply  says  that  this  sacrifice  is  a  constituent 
element  of  the  costs,  and  is  done  with  it.  Bastiat,  who  bases 
the  value  of  goods  on  "  exchanged  services,"  elevates  the 
postponement  also  to  the  rank  of  a  service.  "  Postponement 
in  itself  is  a  special  service,  since  on  him  who  postpones  it 
imposes  a  sacrifice,  and  on  him  who  desires  it  confers  an 
advantage." l  This  service,  according  to  the  great  law  of 
society,  which  runs  "  service  for  service,"  must  be  specially 
paid.  The  payment  takes  place  where  the  capitalist  has 
borrowed  his  capital  from  another  person  by  means  of  loan 
interest  (inUret). 

But  even  outside  of  loan  interest  this  service  must  be 
compensated ;  for,  speaking  generally,  every  one  who  receives 
a  satisfaction  must  also  bear  the  collective  burdens  which  its 
production  requires,  including  the  postponement.  This  post- 
ponement is  looked  upon  as  an  "  onerous  circumstance,"  and 

1  Harmonics  Economiqncs  (vol.  vi.  of  complete  works),  third  edition,  Paris, 
1855,  p.  210.  See  also  the  pages  immediately  preceding,  207-209,  and  generally 
the  whole  of  Chapter  VII. 


CHAP,  in  BASTIATS  STATEMENT  289 

forms  therefore,  quite  universally,  an  element  in  the  valuation 
of  the  service,  and  at  the  same  time  in  the  formation  of  the 
value  of  goods.  This  is,  in  a  few  words,  the  substance  of 
what  Bastiat  says  with  rhetorical  diffuseness  and  copious 
repetitions. 

I  called  this  doctrine  a  deteriorated  copy  of  Senior's. 
If  we  put  on  one  side  all  those  defects  that  belong 
to  Bastiat's  interest  theory  not  as  such,  but  only  in  virtue 
of  its  being  embodied  in  his  value  theory — which  to  my 
mind  is  exceedingly  faulty — the  deterioration  shows  itself 
chiefly  in  two  respects. 

The  first  is  that  Bastiat  confines  his  attention  and  his 
arguments  almost  entirely  to  a  secondary  point,  the  explanation 
of  contract  interest,  and  for  that  neglects  the  principal  thing, 
the  explanation  of  natural  interest.  Both  in  his  Harmonies 
Ec&n&miques  and  in  the  monograph  which  he  specially  devoted 
to  the  interest  problem,  Capital  et  Rente,  he  is  never  tired  of 
discoursing  by  the  page  on  the  interpretation  and  justification 
of  loan  interest. 

But  he  applies  his  theory  to  the  explanation  of  natural 
interest  only  once,  and  then  only  in  passing,  in  the  passages 
already  quoted  (Harmonies,  third  edition,  p.  213);  and  these 
leave  a  great  deal  to  be  desired  in  point  of  clearness  and 
thoroughness. 

The  results  of  this  negligence  make  themselves  felt 
principally  in  this,  that  the  chief  thing  in  the  exposition  of 
interest,  the  sacrifice  of  postponement,  is  not  nearly  so  clearly 
put  by  Bastiat  as  by  Senior;  for  when  Bastiat  opposes  the 
owner  of  capital  to  the  borrower  of  capital,  the  sacrifice  which 
lie  speaks  of  as  made  by  the  owner  is  generally  that  of  doing 
without  the  productive  use  that  meantime  might  have  been 
made  of  the  capital  lent.1  This  has  quite  a  good  signification 

1  "Si  Ton  penetre  le  fond  des  choses,  on  trouve  qu'en  ce  cas  le  cedant  se 
prive  en  faveur  du  cessionaire  on  d'une  satisfaction  immediate  qu'il  recule  de 
plusieure  annees,  ou  d'tm  instrument  de  travail  qui  aurait  augmente  ses  forces, 
fait  concourir  les  agents  naturels,  et  augmente,  a  sou  profit,  le  rapport  des 
satisfactions  aux  efforts"  (vii.  p.  209).  "II  ajourne  la  possibilite  d'une 
production.  .  .  .  Je  1'emploierai  pendant  dix  ans  sous  une  forme  productive  " 
(xv.  p.  445).  So  often  in  the  tract  Capital  et  Rente,  e.g.  p.  44.  James,  who  has 
made  a  plane,  and  has  now  lent  it  to  William  for  a  year,  makes  this  the  ground 
for  his  claim  of  interest :  "  I  expected  some  advantage  from  it,  more  work  done  and 
better  paid,  an  improvement  in  my  lot.  I  cannot  lend  you  all  that  for  nothing." 

U 


290  THE  ABSTINENCE  THEORY  BOOK  iv 

if  it  means  nothing  more  than  what  Salmasius  had  once  tried 
to  prove  against  the  canonists,  that,  if  by  employing  capital 
a  man  can  make  a  natural  profit,  there  is  both  reason  and 
justification  for  claiming  an  interest  on  the  capital  when  loaned. 
But  to  point  to  that  sacrifice  is  evidently  quite*  inappropriate 
as  an  explanation  of  natural  interest,  and  the  phenomenon  of 
interest  in  general  is  not  satisfactorily  explained  thereby,  the 
existence  of  natural  interest  being  already  assumed  in  it  as  a 
given  fact. 

For  the  deeper  explanation  of  interest  it  is  evident  that 
that  other  sacrifice  on  which  Senior  dwells  is  the  only  one  that 
has  any  importance, — the  sacrifice  that  consists  in  postponing 
the  satisfaction  of  needs.  Now  Bastiat  of  course  speaks  of 
this  sacrifice  also,  but  by  confusing  it  with  the  former  sacrifice 
he  gets  his  doctrine  into  a  tangle ;  indeed  it  seems  to  me  that 
he  not  only  confuses  his  readers,  but  himself.  At  least  there 
are  to  be  found  in  his  writings,  especially  in  his  Capital  et 
Rente,  not  a  few  passages  in  which  he  starts  with  his  Abstinence 
theory,  but  comes  suspiciously  near  the  standpoint  of  the  Naive 
Productivity  theorists.  The  course  of  explanation  suggested, 
in  the  often  quoted  passage  in  the  Harmonies,  was  to  show 
how  under  capitalist  production  the  surplus  value  of  the 
product  arises  from  the  necessity  of  buyers  of  the  product 
paying  for  the  "  onerous  circumstance "  of  the  postponement 
of  gratification,  as  well  as  for  the  labour  embodied  in  the 
product  Instead  of  following  out  this  line  of  explana- 
tion, he  not  unfrequently  looks  upon  it  as  self-evident  that 
capital,  in  virtue  of  the  productive  power  that  resides  in  it, 
must  give  its  owner  an  "  advantage,"  a  "  gain,"  an  enhanced 
price,  and  a  bettering  of  his  lot ;  in  a  word,  a  profit.1  But 
that,  as  we  know  already,  is  not  to  explain  interest,  but  to 
assume  it. 

1  Thus  Bastiat  in  Capital  et  Rente,  p.  40,  assumes  that  the  borrowed  sack 
of  corn  puts  the  borrower  in  a  position  to  produce  a  valeur  superieurc.  On  p. 
43  lie  calls  the  reader's  attention,  in  italics,  to  the  fact  that  the  "principle  that 
is  to  solve  the  interest  problem  "  is  the  power  that  resides  in  the  tool  to  increase 
the  productivity  of  labour.  Again  he  says,  on  p.  46,  "  Nous  pouvons  conclure 
qu'il  est  dans  la  nature  du  capital  de  produire  un  interet."  On  p.  54,  "  L'outil 
met  1'emprunteur  a  nieme  de  faire  des  profits."  Indeed  it  is  the  aim  of  the 
brochure,  as  we  gather  from  the  introduction  to  it,  to  defend  the  "  productivity 
of  capital  "  against  the  attacks  of  the  socialists. 


CHAP,  in  BASTIATS  STATEMENT  291 

As  a  fact,  Bastiat  has  often  been  accused  of  having 
entirely  missed  the  chief  point,  the  explanation  of  natural 
interest ;  the  accusation  is  not,  I  think,  quite  justified,  but,  as 
we  can  see,  it  is  very  easily  explained.1 

This  is  the  first  point  in  which  Bastiat's  theory  does  not 
improve  on  Senior's.  The  second  consists  in  a  wonderful 
addition  he  makes.  Besides  the  explanation  of  interest  just 
stated,  he  gives  another — of  so  different  a  nature,  and  at  the 
same  time  so  evidently  mistaken,  that  I  cannot  even  make  a 
guess  as  to  how  Bastiat  saw  any  relation  between  it  and  his 
principal  explanation. 

Every  branch  of  production,  he  explains,  is  an  aggregate 
of  efforts.  But  between  various  efforts  an  important  distinc- 
tion is  to  be  drawn.  One  category  of  efforts  is  connected 
with  services  which  we  are  presently  engaged  in  rendering. 
A  second  category  of  efforts,  on  the  other  hand,  is  connected 
with  an  indefinite  series  of  services.  To  the  first  category,  for 
instance,  belong  the  daily  efforts  of  the  water-carrier,  which  are 
directed  immediately  to  the  fetching  of  water ;  or,  in  the  sphere 
of  agriculture,  the  labours  of  sowing,  weeding,  ploughing, 
harrowing,  reaping,  threshing,  which  are  collectively  directed 
to  obtain  a  single  harvest.  To  the  sdcond  category  belongs 
the  labour  which  the  water-carrier  expends  in  making  his 
barrow  and  water  cask ;  which  the  farmer  expends  on  his 
hedging,  harrowing,  draining,  building,  improvements  generally  : 
all  those  labours  which,  as  the  economists  say,  go  to  the 
formation  of  a  fixed  capital,  and  result  in  benefit  to  a  whole 
series  of  consumers,  or  a  whole  series  of  harvests.2 

Bastiat  now  raises  the  question,  How,  according  to  the 
great  law  of  "  service  for  service,"  are  these  two  categories  of 
efforts  to  be  estimated  or  rewarded  ?  As  regards  the  first 
category,  he  finds  this  very  simple.  These  services  must  be 
compensated,  on  the  whole,  by  those  who  profit  by  them.  But 
that  does  not  apply  in  the  case  of  the  second  category,  those 
services  which  lead  to  the  formation  of  a  fixed  capital ;  for  the 
number  of  those  who  profit  by  this  capital  is  indefinite.  If 
the  producer  were  to  get  paid  by  the  first  consumers  it  would 
not  be  just ;  for,  in  the  first  place,  it  is  unreasonable  that  the 

1  See,  e.g.  Rodbertus,  Zur  Seleuchtung,  L  p.  116,  etc.  ;  Pierstorff,  p.  202. 

2  P.  214. 


292  THE  ABSTINENCE  THEORY  BOOK  iv 

first  consumers  should  pay  for  the  last ;  and  in  the  second 
place,  there  must  come  a  point  of  time  when  the  producer 
would  have  at  once  the  stock  of  capital  not  yet  consumed,  and 
also  his  compensation,  which  again  involves  an  injustice.1 
Consequently,  Bastiat  concludes  with  a  mighty  logical  salto 
mortale,  the  distribution  among  the  indefinite  series  of  con- 
sumers is  only  managed  thus :  the  capital  itself  is  not 
distributed,  but  the  consumers  are  burdened  with  the  interest 
of  the  capital  instead — a  way  of  getting  out  of  it  which 
Bastiat  explains  to  be  the  only  conceivable  one  for  the  solution 
of  the  problem  in  question,2  and  one  which,  offered  spon- 
taneously by  the  "  ingenious  natural  mechanism  of  society," 
saves  us  the  trouble  of  substituting  an  artificial  mechanism 
in  its  place.3  Thus  Bastiat  explains  interest  as  the  form  in 
which  an  advance  of  capital  is  redistributed  over  a  sum  of 
products  :  "  C'est  la,  c'est  dans  la  repartition  d'une  avance  sur 
la  totalit^  des  produits,  qu'est  le  principe  et  la  raison  d'etre  de 
1'Interet"  (vii.  p.  205). 

It  must  have  occurred  to  every  one  while  reading  these 
lines  that,  in  this  analysis,  Bastiat  has  fallen  into  some  errors 
almost  inconceivably  gross.  It  is,  first,  an  error  to  say  that  it 
is  not  possible  to  distribute  the  capital  itself  over  the 
purchasers.  Every  business  man  knows  that  it  is  possible ; 
and  knows  too  that  it  is  done,  and  how  it  is  done.  He  simply 
calculates  the  probable  duration  of  the  capital  laid  out,  and, 
on  the  basis  of  this  calculation,  charges  every  single  period 
during  which  the  capital  is  employed,  and  every  single  product, 
with  a  corresponding  quota  for  wear  and  tear  and  replacement 
of  the  capital  sum.  When  the  purchasers  pay  the  quota  for 
replacement  of  the  fixed  capital  in  the  price  of  the  finished 
commodities,  "the  capital  itself"  is  of  course  distributed  over 
them.  Perhaps  not  with  absolute  "justice,"  because  there 
may  be  an  error  in  the  calculated  duration  of  the  capital, 
and  in  the  calculated  quota  for  wear  and  tear  which  is 
based  on  that ;  but,  on  the  average,  the  prices  successively 

1  P.  216. 

2  ".   .  .  et  je  dene  qu'on  puisse  imaginer  une  tello  repartition  en  dehors  du 
mecanisme  de  1'interet"  (p.  217). 

3  ' '  Reconnaissons  done  que  le  mecanisme  social  naturel  est  assez  ingenieuz  pour 
que  nous  puissions  nous  dispenser  do  lui  substituer  un  mecanisme  artificiel "  (p. 
216,  at  end). 


CHAP,  in  BASTIAT S  STATEMENT  293 

paid  will,  in  any  case,  cover  the  capital  sum  that  is  to  be 
replaced. 

And  it  is  a  second  gross  error  to  assume  that  the 
producers  receive  interest  instead  of  receiving  back  the  capital 
itself,  which,  he  says,  cannot  be  distributed.  The  fact  is,  as 
every  one  knows  (1),  that,  in  the  quota  for  replacement,  they 
receive  back  the  capital  itself,  and  (2)  so  long  as  a  part  of  this 
capital  lasts  they  receive  interest  besides.  Interest,  therefore, 
rests  on  an  entirely  distinct  foundation  from  the  replacement  of 
capital.  It  is  really  difficult  to  understand  how  Bastiat  could 
make  a  mistake  in  such  simple  and  well-known  matters. 

In  conclusion,  I  may  note  in  passing  that  Bastiat  has 
borrowed  his  practical  law  of  interest  from  Carey :  the  law 
that  with  the  increase  of  capital  the  absolute  share  obtained 
by  the  capitalist  in  the  total  product  increases,  and  the  relative 
share  diminishes.1  In  his  attempts  to  prove  this  law — 
which  from  the  point  of  view  of  theory  are  quite  worthless — 
like  Carey  he  carelessly  confuses  the  conception  of  "  percentage 
of  total  product "  with  the  conception  of  "  percentage  on 
capital "  (rate  of  interest). 

On  the  whole,  Bastiat's  interest  theory  seems  to  me  to  be 
quite  unworthy  of  the  reputation  which '  it  has,  at  least  in 
certain  circles,  so  long  enjoyed. 

1  P.  223. 


BOOK  V 

THE    LABOUR   THEORIES 


CHAPTER    I 

THE   ENGLISH    GKOUP 

UNDER  the  title  of  the  Labour  theories  I  group  together  a 
number  of  theories  which  agree  in  explaining  interest  as  a 
wage  for  labour  rendered  by  the  capitalist. 

As  to  the  nature  of  the  "labour"  which  furnishes  the 
basis  for  the  capitalist's  claim  of  wage  there  is  very  material 
divergence  among  the  various  views.  Thus  I  am  compelled 
to  distinguish  three  independent  groups  of  Labour  theories,  and 
as  it  happens  that  their  respective  circles -of  adherents  are 
marked  out  very  much  by  nationality,  I  shall  call  them  the 
English,  the  French,  and  the  German  group. 

The  English  writers,  chiefly  represented  by  James  Mill  and 
M'Culloch,  explain  interest  by  tracing  it  to  that  labour  through 
which  real  capital  itself  comes  into  existence. 

James  Mill l  chances  on  the  interest  problem  in  his  doc- 
trine of  price.  He  has  put  down  the  proposition  that  the 
costs  of  production  regulate  the  exchange  value  of  goods 
(p.  93).  At  the  first  glance  capital  and  labour  are  seen  to  be 
constituents  of  the  cost  of  production.  But  on  looking  closer 
Mill  sees  that  capital  itself  comes  into  existence  through 
labour,  and  that  all  costs  of  production  may  be  traced  therefore 
to  labour  alone.  Labour  then  is  the  sole  regulator  of  the 
value  of  goods  (p.  97). 

With  this  proposition,  however,  the  well-known  fact,  dis- 
cussed already  by  Eicardo,  that  postponement  also  has  an 
influence  on  the  price  of  goods,  does  not  appear  to  agree.  If, 
for  instance,  in  one  and  the  same  season  a  cask  of  wine  and 

1  Elements  of  Political  Economy,  third  edition,  London,  1826.      I  was  not 
able,  unfortunately,  to  get  sight  of  the  first  edition  of  1821. 


298  ENGLISH  LABOUR   THEORIES  BOOK  v 

twenty  sacks  of  meal  L.ve  been  produced  by  the  same  amount 
of  labour,  they  will  of  course,  at  the  end  of  the  season,  have  an 
equal  exchange  value.  But  if  the  owner  of  the  wine  lays  it  in 
a  cellar  and  keeps  it  for  a  couple  of  years,  the  cask  of  wine  will 
have  more  value  than  the  twenty  sacks  of  meal — indeed,  more 
value  by  the  amount  of  two  years'  profit. 

Now,  James  Mill  gets  rid  of  this  disturbance  of  his  law  by 
explaining  profit  itself  as  a  wage  of  labour ;  as  a  remuneration 
for  indirect  labour.  "  It  is  no  solution  to  say  that  profits 
must  be  paid,  because  this  only  brings  us  to  the  question,  Why 
must  profits  be  paid  ?  To  this  there  is  no  answer  but  one, 
that  they  are  the  remuneration  for  labour,  labour  not  applied 
immediately  to  the  commodity  in  question,  but  applied  to  it 
through  the  medium  of  other  commodities,  the  produce  of 
labour." 

This  idea  is  more  exactly  elucidated  by  the  following 
analysis.  "  A  man  has  a  machine,  the  produce  of  a  hundred 
days'  labour.  In  applying  it  the  owner  undoubtedly  applies 
labour,  though  in  a  secondary  sense,  by  applying  that  which 
could  not  have  been  had  but  through  the  medium  of  labour. 
This  machine,  let  us  suppose,  is  calculated  to  last  exactly  ten 
years.  One-tenth  of  the  fruit  of  a  hundred  days'  labour  is 
thus  expended  every  year,  which  is  the  same  thing  in  the 
view  of  cost  and  value  as  saying  that  ten  days'  labour  has 
been  expended.  The  owner  is  to  be  paid  for  the  hundred 
days'  labour  which  the  machine  costs  him  at  the  rate  of  so 
much  per  annum,  that  is,  by  an  annuity  for  ten  years  equiva- 
lent to  the  original  value  of  the  machine.1  It  thus  appears  ('.) 
that  profits  are  simply  remuneration  for  labour.  They  may, 
indeed,  without  doing  any  violence  to  language  (!),  hardly  even 
by  a  metaphor,  be  denominated  wages ;  the  wages  of  that 
labour  which  is  applied,  not  immediately  by  the  hand,  but 
mediately,  by  the  instruments  which  the  hand  has  produced. 
And  if  you  may  measure  the  amount  of  immediate  labour  by 
the  amount  of  wages,  you  may  measure  the  amount  of  secondary 
labour  by  that  of  the  return  to  the  capitalist." 

In  this  way  James  Mill  thinks  that  he  has  satisfactorily 

1  The  author  (as  is  evident  from  a  parallel  passage  on  p.  100)  means  annuities 
which  replace  the  original  value  of  the  machine  in  ten  years,  and  at  the  same 
time  pay  interest  at  the  rate  fixed  by  the  condition  of  the  market. 


CHAP,  i  JAMES  MILL  299 

explained  interest,  and  at  the  same  time  maintained  in  its 
integrity  his  law  that  labour  alone  determines  the  value  of 
goods.  It  is  pretty  obvious,  however,  that  he  has  not 
succeeded  in  doing  either. 

It  may  be  allowed  to  pass  that  he  calls  capital  "  hoarded  " 
labour ;  that  he  calls  the  employment  of  capital  employment 
of  a  mediate  secondary  labour;  and  that  he  considers  the 
wearing  out  of  the  machine  as  a  giving  out  of  the  hoarded 
labour  by  instalments.  But  why  then  is  every  instalment  of 
hoarded  labour  paid  by  an  annuity  which  contains  more  than 
the  original  value  of  that  labour,  namely,  the  original  value 
plus  the  usual  rate  of  interest  thereon?  Allowing  that  the 
remuneration  of  capital  is  the  remuneration  of  mediate  labour, 
why  is  the  mediate  labour  paid  at  a  higher  rate  than  the 
immediate ;  why  does  the  latter  receive  the  bare  rate  of  wages 
while  the  former  receives  an  annuity  higher  by  the  amount  of 
the  interest  ?  Mill  does  not  solve  this  question.  He  takes 
the  fact  that  a  capital,  according  to  the  state  of  competition  in 
the  market,  has  equal  value  with  a  certain  number  of  annual 
payments  that  already  include  the  interest,  and  uses  this  fact  as 
a  fixed  centre,  as  if  he  had  not  taken  upon  himself  to  explain 
the  profit,  and  therefore  also  the  extra  profit,  that  is  contained 
in  the  annuity. 

He  says,  I  admit,  in  an  explanatory  tone,  Profit  is  wage 
of  labour.  But  he  has  a  very  false  idea  of  the  explanatory 
power  of  this  phrase.  It  might  perhaps  be  satisfactory  if  Mill 
could  show  that  there  is  here  a  labour  which  has  not  yet 
received  its  normal  wage,  and  will  only  receive  it  in  the 
profit ;  but  it  is  in  no  way  satisfactory  to  explain  profit  as  an 
extra  wage  for  a  labour  that  has  already  been  paid  at  the 
normal  rate  by  means  of  the  sum  for  amortisation  contained  in 
the  annuities.  It  is  always  open  to  ask,  Why  should  mediate 
labour  be  more  highly  paid  than  immediate  labour  ?  And  this 
is  a  question  towards  the  solution  of  which  Mill  has  given 
not  the  slightest  hint.  Moreover  by  this  artificial  construc- 
tion he  even  loses  the  advantage  of  remaining  consistent 
with  his  Labour  theory;  for  evidently  the  law  that  the 
amount  of  labour  determines  the  price  of  all  goods  is  rudely 
upset  if  a  part  of  the  price  is  traceable,  not  to  the  amount 
of  the  labour  expended,  but  to  the  greater  height  of  the  wage 


300  FRENCH  LABOUR   THEORIES  BOOK  v 

that    it    receives !      In   this   respect,  therefore,  Mill's    theory 
comes  considerably  short  of  its  professed  object. 

A  very  similar  theory  was  put  forward  by  M'Culloch, 
in  the  first  edition  of  his  Principles  of  Political  Economy 
(1825),  but  omitted  in  later  editions.  I  have  stated  it 
already  on  an  earlier  occasion,  and  need  add  nothing  more 
to  that  statement.1  Finally,  the  same  idea  was  given  out 
cursorily  by  Read  in  England  and  Gerstner  in  Germany,  but 
these  writers  we  shall  have  to  consider  later  on  among  the 
eclectics. 

THE  FRENCH   GROUP 

A  second  group  of  Labour  theorists  pronounce  interest  to 
be  the  wage  of  that  labour  which  consists  in  the  saving  of 
capital  (Travail  tfEpargne).  This  theory  is  carried  out  most 
thoroughly  by  Courcelle-Seneuil.2 

According  to  Courcelle-Seneuil,  there  are  two  kinds  of 
labour — muscular  labour  and  the  labour  of  Saving  (p.  85). 
The  latter  conception  he  expounds  as  follows.  In  order  that 
a  capital  once  made  should  be  conserved,  there  is  need  of  a 
continual  effort  of  foresight  and  saving,  in  so  far  as,  on  the 
one  hand,  one  looks  to  future  needs,  and,  on  the  other  hand, 
refrains  from  present  enjoyment  of  capital  with  the  view  of 
being  able  to  satisfy  future  needs  by  means  of  the  capital 
thus  saved.  In  this  "labour"  lies  an  act  of  intelligence — 
the  foresight,  and  an  act  of  will — the  saving  that  "  refrains 
from  enjoyment  for  a  given  period  of  time." 

Of  course,  at  the  first  glance,  it  appears  singular  to  give 
to  saving  the  name  of  Labour.  But  this  impression,  in  the 
author's  opinion,  only  arises  from  our  usually  looking  too  much 
at  the  material  side  of  things.  If  we  reflect  dispassionately 
for  a  moment  we  will  recognise  that  it  is  just  as  painful  to  a 
man  to  refrain  from  the  consumption  of  an  article  when  made, 
as  to  labour  with  his  muscles  and  his  intellect  to  obtain  an 
article  that  he  wishes ;  and  that  it  really  requires  a  special 
un-natural  exertion  of  intellect  and  will  to  maintain  capital  in 

1  See  above,  p.  97.    The  doubtful  honour  of  priority  in  this  theory  belongs  to 
James  Mill. 

2  Trait^  thtorique  et  pratique  d"  Economic  Politiqiie,  i.  Paris,  1858. 


CHAP,  i  COURCELLE-SENEUIL  301 

existence — an  act  of  will  which  is  contrary  to  the  natural  bias 
toward  pleasure  and  idleness. 

After  attempting  to  strengthen  this  line  of  argument  by 
pointing  to  the  habits  of  savages,  the  author  concludes  with 
this  formal  deliverance :  "  We  consider  then  that  saving  is 
really,  and  not  simply  metaphorically,  a  form  of  industrial 
labour,  and  consequently  a  productive  power.  It  demands  an 
exertion  which,  it  is  true,  is  purely  of  a  moral  kind,  but  it  is 
all  the  same  painful.  It  has  therefore  as  much  right  to  the 
character  of  labour  as  an  exertion  of  the  muscles  has." 

Now  the  labour  of  saving  demands  remuneration  in  the 
same  way  as  muscular  labour.  While  the  latter  is  paid  by  the 
scdaire,  the  former  obtains  its  payment  in  the  shape  of 
interest.  The  following  passage  explains  the  necessity  of  this, 
and  shows  in  particular  why  the  wage  of  the  labour  of  saving 
must  be  a  permanent  one :  "  The  desire,  the  temptation  to  con- 
sume, is  a  permanent  force;  its  action  can  only  be  suspended  by 
combating  it  with  another  force  which,  like  itself,  is  permanent. 
It  is  clear  that  every  one  would  consume  as  much  as  possible 
if  he  had  no  interest  (sfl  n'avait  pas  int^rSt)  to  abstain  from 
consuming.  He  would  cease  to  abstain  from  the  moment  that 
he  ceased  to  have  this  interest,  so  that  it  must  continue  with- 
out interruption,  in  order  that  capitals  may  always  be  con- 
served. That  is  why  we  say  that  interest "  (Pintttret :  note  the 
play  upon  words)  "  is  the  remuneration  of  this  labour  of  saving 
and  of  conservation;  without  it  capitals,  whatever  be  their 
form,  could  not  continue ;  it  is  a  necessary  condition  of 
industrial  life"  (p.  322). 

The  height  of  this  wage  is  regulated  "  according  to  the 
great  law  of  supply  and  demand  " ;  it  depends,  on  the  one  side, 
on  the  wish  and  the  ability  to  expend  a  sum  of  capital 
reproductively ;  and  on  the  other,  on  the  wish  and  the  ability 
to  save  this  sum. 

To  my  mind  all  the  pains  which  its  author  has  taken  to 
represent  the  Labour  of  Saving  as  a  real  labour  cannot  efface 
the  stamp  of  artificiality  which  this  theory  bears  on  its  very 
face.  The  non- consuming  of  wealth  a  labour;  the  pocket- 
ing of  interest  by  those  who  toil  not  nor  spin,  a  suitable  wage 
for  work ; — what  a  chance  for  any  Lassalle  who  cares  to  play 
upon  the  impressions  and  emotions  of  the  reader !  But, 


302  FRENCH  LABOUR  THEORIES  BOOK  v 

instead  of  stating  rhetorically  that  Courcelle  is  wrong,  I  prefer 
to  show  on  rational  grounds  why  he  is  wrong. 

First  of  all,  it  is  clear  that  Courcelle's  theory  is  only 
Senior's  Abstinence  theory  clad  in  a  slightly  different  dress. 
As  a  rule,  where  Senior  says  "  abstinence,"  or  "  sacrifice  of 
abstinence,"  Courcelle  says  "  labour  of  abstinence,"  but  really 
both  writers  make  use  of  the  one  fundamental  idea  in  the  same 
way.  Thus  at  the  outset  Courcelle's  Labour  theory  is  open  to 
a  great  many  of  those  objections  raised  to  Senior's  Abstinence 
theory,  on  the  ground  of  which  objections  we  have  already 
pronounced  that  theory  to  be  unsatisfactory. 

But  further,  the  new  form  which  Courcelle  gives  it  is 
open  to  special  objections  of  its  own. 

It  is  quite  correct  to  say  that  foresight  and  saving  do 
cost  a  certain  moral  pain.  But  the  presence,  of  labour  in 
anything  by  which  an  income  is  obtained  is  far  from  justify- 
ing us  in  explaining  that  income  as  a  wage  of  labour.  To 
do  so  we  must  be  able  to  show  that  the  income  is  really 
obtained  for  the  labour,  and  only  in  virtue  of  the  labour. 
Now  this  will  be  best  shown  if  we  find  that  the  income 
emerges  where  labour  has  been  expended ;  that  it  is  wanting 
where  there  has  been  no  labour ;  that  it  is  high  where  much  of 
the  labour  has  been  expended,  and  low  where  little  has 
been  expended.  But  of  any  such  harmony  between  the 
alleged  cause  of  interest  and  the  actual  emergence  of  interest, 
it  would  be  difficult  to  discover  a  trace.  The  man  who 
carelessly  cuts  the  coupons  of  £100,000,  or  gets  his 
secretary  to  cut  them,  draws  a  "wage  of  labour"  of  £4000  or 
£5000.  The  man  who,  with  actual  pain  of  foresight  and 
saving,  has  scraped  together  £50,  and  .put  them  in  the  savings 
bank,  scarcely  gets  a  couple  of  pounds  for  his  "  labour  " ;  while 
the  man  who,  with  as  much  pain,  has  saved  £50,  but  cannot 
risk  them  out  of  his  hand  because  of  some  claim  that  may  be 
made  on  him  at  any  moment,  gets  absolutely  no  wage  at  all. 

What  is  the  reason  of  this  ?  Why  are  wages  apportioned 
so  differently — differently  as  between  individual  classes  of 
saving  labourers ;  differently  as  compared  with  the  wage 
payment  of  muscular  labour?  What  is  the  reason  that  the 
owner  of  £100,000  gets  £5000  for  his  "year's  labour";  that 
the  manual  labourer,  who  suffers  pain  and  saves  nothing,  gets 


CHAP,  i  COURCELLE-SENEUIL  303 

£50  ;  that  the  artisan,  who  suffers  pain  and  saves  £50 
thereby,  gets  the  sum  of  £52  for  "muscular  labour"  and 
"  labour  of  saving "  together  ?  A  theory  which  pronounces 
interest  to  be  wages  of  labour  must  undertake  to  make  its 
explanation  more  exact.  Instead  of  this,  the  nice  question 
of  the  rate  of  interest  is  simply  dismissed  by  Courcelle  with 
a  general  reference  to  the  great  law  of  supply  and  demand. 

Without  meaning  to  be  ironical,  one  might  say  that 
Courcelle  would  have  had  almost  as  much  justification, 
theoretically  speaking,  if  he  had  pronounced  the  bodily  labour 
of  pocketing  the  interest,  or  of  cutting  the  coupons,  to  be  the 
ground  and  basis  of  interest.  These  also  are  "  labours  "  which 
the  capitalist  performs,  and  if  it  should  be  thought  strange  that, 
according  to  the  law  of  supply  and  demand,  this  sort  of  labour 
is  paid  at  such  an  unusually  high  rate,  it  is  scarcely  more 
strange  than  the  fact  we  have  just  been  considering — that  the 
intellectual  labour  of  inheriting  a  million  of  money  is  annually 
paid  by  so  many  thousands  of  pounds.  One  might  say  of  this 
latter  kind  of  labour,  So  few  people  have  the  "  wish  and  the 
ability "  to  lay  up  millions  of  capital,  that,  in  the  existing 
demand  for  capital,  the  wages  of  such  people  must  be  very 
high;  and  similarly  it  might  be  said  of  the  former,  So  very  few 
people  have  the  "  wish  and  the  ability  "  to  pocket  thousands 
of  pounds  in  interest.  Of  "  wish  "  there  will  be  no  lack  in 
either  case;  but  of  ability — well,  that  rests  in  both  cases 
principally  on  the  fact  of  a  person  being  so  fortunate  as  to 
possess  a  million  of  capital ! 

If  after  what  has  been  said  a  direct  refutation  of 
Courcelle's  Labour  theory  still  seems  necessary,  let  me  put  the 
following  case.  A  capitalist  lends  a  manufacturer  £100,000  at 
5  per  cent  for  a  year.  The  manufacturer  employs  the  £1 00,000 
productively,  and  by  doing  so  receives  a  profit  of  £6000. 
From  this  he  deducts  £5000  as  interest  due  to  the 
capitalist,  and  keeps  £1000  as  undertaker's  profit  to  himself. 
According  to  Courcelle  the  £5000  which  the  capitalist 
receives  are  the  wage  for  providing  for  future  wants,  and  for 
the  act  of  will  which  resists  the  temptation  to  consume  the 
£100,000  immediately  —  an  act  of  will  directed  to  the 
refraining  from  enjoyment.  But  has  not  the  manufacturer 
performed  exactly  the  same,  or  even  a  greater  labour  ?  Was 


304  FRENCH  LABOUR  THEORIES  BOOK  v 

the  manufacturer,  when  he  had  the  £100,000  in  his  hands, 
not  tempted  to  consume  it  immediately  ?  Could  he  not,  for 
instance,  have  squandered  the  capital,  and  gone  through  the 
bankruptcy  court  ?  Has  he  then  not  also  withstood  the  tempta- 
tion and  asserted  his  will  in  refraining?  Has  he  not  by 
prudence  and  foresight  done  more  than  the  capitalist  to 
provide  for  future  needs,  in  as  much  as  he  not  only  thought 
of  future  needs  in  general,  but  gave  his  stock  of  materials 
that  positive  treatment  which  changed  them  into  products, 
and  thus  actually  fitted  them  to  satisfy  human  wants? 
And  yet  the  capitalist  for  the  labour  of  conserving  his 
£100,000  receives  £5000,  and  the  manufacturer,  who  has 
performed  the  same  intellectual  and  moral  labour  on  the  same 
£100,000  in  still  greater  degree,  gets  nothing;  for  the 
£1000  which  constitute  his  undertaker's  profit  are  payment 
for  quite  another  kind  of  activity. 

It  may  be  objected  that  the  manufacturer  would  not 
have  dared  to  use  the  £100,000,  seeing  that  it  was  not  his 
property ;  in  his  saving,  therefore,  there  is  no  merit  to  deserve 
payment.  But  in  this  theory  merit  has  nothing  to  do  with 
the  case.  The  wage  of  saving  is  great  if  only  the  sum  saved 
and  conserved  be  great,  without  the  slightest  consideration 
whether  the  conservation  has  demanded  much  moral  striving 
or  little.  But  that  the  debtor  has  actually  conserved  the 
£100,000,  and  has  overcome  the  temptation  to  consume  it, 
admits  of  no  denial.  Why  then  does  he  get  no  "  wage  of 
saving "  ?  To  my  mind  there  can  be  no  doubt  about  the 
explanation  of  these  facts.  It  is  that  people  get  interest,  not 
because  they  work  for  it,  but  simply  because  they  are  owners. 
Interest  is  not  an  income  from  labour/but  an  income  from 
ownership. 

Quite  recently  Courcelle-SeneuiTs  theory  has  been,  some- 
what timidly,  followed  by  Cauwes.1 

This  writer  states  it,  but  not  as  his  sole  interest  theory, 
and  not  without  certain  clauses  and  turns  of  expression 
which  show  that  he  finds  this  conception  of  the  "  labour  of 
saving "  not  quite  beyond  question.  "  Since  the  conservation 
of  a  capital  presupposes  an  exertion  of  the  will,  and  in  many 
1  Pricis  du  Cours  d' Economic  Politique,  second  edition,  Paris,  1881,  1882. 


CHAP,  i  CAUWES  305 

cases  even  industrial  or  financial  combinations  of  some 
difficulty,  one  might  say  that  it  represents  a  veritable  labour 
such  as  has  sometimes,  and  not  without  justification,  been 
called  Travail  cTJSpargne"  (i.  p.  183).  And  in  another  place 
Cauwes  meets  the  doubt  whether  interest  be  due  to  the 
capitalist,  since  the  loan  costs  no  labour  to  justify  the  claim 
of  interest,  in  the  words  :  "  In  the  loan,  it  may  be,  there  is  no 
labour;  but  the  labour  consists  in  the  steadfast  will  to  preserve 
the  capital,  and  in  the  protracted  abstinence  from  every  act 
of  gratification  or  consumption  of  the  value  represented  by  it. 
It  is,  if  the  expression  does  not  seem  too  bizarre,  a  labour 
of  saving  that  is  paid  by  interest." *  But  besides  this  Cauwes 
brings  forward  other  grounds  for  interest,  particularly  a  state- 
ment of  the  productivity  of  capital,  and  thus  we  shall  meet 
him  again  among  the  eclectics. 

A  slight  approach  to  Courcelle's  Labour  theory  is  to  be 
found  in  a  few  other  French  writers ;  as  in  Cherbuliez,2  who 
pronounces  interest  to  be  wage  for  the  "  efforts  of  abstinence  "  ; 
and  in  Josef  Gamier,'  who  gives  a  very  parti-coloured  explana- 
tion, in  the  course  of  which  he  uses  the  catchword  "  labour  of 
saving." 3  But  these  last  named  do  not  carry  the  conception 
any  farther. 

THE   GERMAN   GROUP 

The  idea  that  in  France  afforded  material  for  a  very 
artificial  and  elaborate  theory  of  interest  has  been  made 
use  of — of  course  on  freer  lines — by  a  prominent  school  of 
German  economists,  the  Katheder  Socialists,  to  use  a  term 
which  has  been  acclimatised.4  The  Labour  theory  of  the 
German  Katheder  Socialists  is,  however,  only  loosely  connected 
with  the  French  theory  in  having  the  same  fundamental  idea. 
Both  in  origin  and  in  manner  of  development  it  is  entirely 
independent. 

The  origin  of  the  German  Labour  theory  may  be  found  in 
a  somewhat  incidental  remark  that  occurs  in  one  of  the 

1  ii.  p.  189  ;  also  i.  p.  236.  a  See  above,  p.  286. 

8  Traitt  <f  Economic  Politique,  eighth  edition,  Paris,  1880.     P.  522:    "  Le 
loyer  remunere  et  provoque  lea  efforts  ou  le  travail  d'epargne  et  de  conservation." 

4  The  name  they  themselves  use  is  the  "Social  Political-School  of  National 
Economy." 

X 


306  GERMAN  LABOUR  THEORIES  BOOK  v 

writings  of  Rodbertus-Jagetzow.  There  he  speaks  of  a  con- 
ceivable state  of  society  where  there  should  be  private  property, 
but  no  rent-bearing  private  property ;  in  which,  therefore,  all 
existing  income  would  be  income  from  labour  in  the  shape 
of  salary  or  wages.  Such  would  be  the  state  of  things  if  the 
means  of  production,  land  and  capital,  were  the  common 
property  of  the  whole  society,  private  rights  of  property  being 
still  recognised  over  the  income  which  each  one  would  receive — 
in  goods  only — in  proportion  to  his  labour. 

On  this  Rodbertus  remarks  in  a  note  that,  in  economical 
respects,  property  in  the  means  of  production  must  be  looked 
upon  in  an  essentially  different  light  from  property  in  an 
income  that  accrues  only  in  the  shape  of  goods.  As  regards 
income-goods,  all  that  is  required  is  that  the  owner  consume 
them  economically.  But  property  in  land  and  capital  is, 
besides,  a  kind  of  office  that  carries  national  economic  functions 
with  it, — functions  which  consist  in  directing  the  economical 
labour  and  the  economical  means  of  the  nation  in  consonance 
with  the  national  need,  and  therefore  in  exerting  those  functions 
which,  in  the  ideal  state  of  collective  ownership,  would  be 
exerted  through  national  officers.  The  most  favourable  view 
then  that  one  can  take  of  rent  from  this  standpoint — land- 
rent  and  capital  rent  alike — is  that  it  represents  the  salaries 
of  such  officers ;  that  it  represents  a  form  of  salary  where  the 
officer  is  strongly,  even  pecuniarily  interested  in  the  proper 
use  of  his  functions.1 

Everything  points  to  the  belief  that  Rodbertus  in  no  way 
intended  in  these  words  to  put  forward  a  formal  theory  of 
interest.2  But  the  idea  latent  in  them  was  seized  on  and 
developed  by  some  of  the  prominent  Katheder  Socialists. 

It  was  first  taken  up  by  Schaffie.  As  early  as  the  third 
edition  of  his  older  work,  the  Gesellschaftliche  System,  1873,  he 
embodied  the  idea,  that  interest  is  a  remuneration  for  services 

1  Zur  Erklarung  und  Alhiilfc  der  hcutigen   Kreditnoth  des  Grundbesitzes, 
second  edition,  1876,  ii.  p.  273,  etc. 

2  This  follows  from  the  tone  of  the  passage,  which  suggests  a  simile  and  a 
comparison  rather  than  a  strict  explanation  ;  from  its  position  in  a  note  ;  from 
the  fact  of  Rodbertus  having  another  and  a  different  theory  ;  finally,  from  an 
explicit  explanation  which  he  makes  in  stating  this  other  theory,  that  interest  in 
the  present   day  has  not   the  character  of  (indirect)    salary,   but  that  of  an 
immediate  share  in  the  national  product  (Zur  Beleuchtung,  p.  75). 


CHAP,  i  RODBERTUS,  SCHAFFLE  307 

rendered  by  the  capitalist,  iu  his  formal  definition  of  interest. 
"  Profit,"  he  says,  "  is  to  be  looked  upon  as  the  remuneration  that 
the  undertaker  may  claim  for  a  national  economic  function 
inasmuch  as,  independently  of  any  national  organisation,  he 
binds  together  the  productive  powers  economically  by  means  of 
the  speculative  use  of  capital."1  This  conception  turns  up 
repeatedly  in  different  connections  in  the  same  book,  and  as 
a  rule  it  occurs  in  those  passages  where  interest  is  looked 
at  from  a  broader  point  of  view.  Schaffie  even  defends  it  in 
one  place  as  the  only  warrantable  theory7,  and  rejects  in  its 
favour  the  other  interest  theories  in  a  body.2  But,  singularly 
enough,  when  he  deals  with  the  nicer  details  of  the  doctrine, 
the  height  of  the  interest  rate  and  so  on,  he  does  not  avail 
himself  of  this  fundamental  idea,  but  makes  use  of  the  technical 
machinery  of  the  Use  theory ;  although  it  must  be  admitted 
that  he  brings  the  Use  theory  very  near  to  the  Labour  theory 
by  the  subjective  colouring  he  gives  to  the  conception  of  Use.3 
In  his  later  work,  the  Ban  und  Leben,  the  conception  of 
interest  as  the  compensation  for  a  "  functional  performance  " 
on  the  part  of  the  capitalist  comes  out  more  distinctly.  This 
conception  makes  it  possible  for  Schaffle  to  justify  interest  at 
least  in  the  present  day,  and  in  so  far  as  we  are  not  able  to 
replace  the  costly  services  of  private  capital  by  a  more  suitable 
organisation,4  But  even  here  the  details  of  the  phenomena  of 
interest  are  not  explained  by  means  of  this  conception,  and  we 
still  find  reminiscences  of  the  Use  theory,  although  the  con- 
ception of  Use  has  now  become  objective.5  Thus  Schaffle,  as 
it  were,  struck  the  key-note,  but  only  the  key-note,  of  a  Labour 
theory;  he  has  not  carried  it  out  in  detail  like  Courcelle-Seneuil. 

1  ii.  p.  458.  .  2  it  p.  459,  etc.  3  See  above,  p.  206. 

4  "  Thus  I  cannot,  in  any  case,  agree  with  the  absolute   condemnation  of 
capital  and  of  profit  as  '  pure  appropriation  of  surplus  value ' ;  it  is  a  function  of 
cardinal    importance   which    private    capital,   whatever    be    its   motives,    now 
performs  when   it    assists  what    Rodbertus  called   'business   left    to   itself,'" 
(second  edition,  iii.  p.  386).     "Historically  then  even  capitalism  maybe  fully 
warranted  and   profit  justified.     To  remove  the  latter  without   having  found 
a  better  organisation   of  production  would  be  senseless."     "We  may  therefore 
practically  condemn  profit  as  appropriation  of  'surplus  value'  only  if  we  are 
able  to  replace  the  economic  service  of  private  capital  by  a  public  organisation 
positively  established,  more  complete,  and  less  greedy  of  surplus  value  "  (Mehrwcrth 
schluckende),  iii.  p.  422. 

5  See  above,  p.  207. 


308  GERMAN  LABOUR  THEORIES  BOOK  v 

Wagner  goes  a  little  farther,  but  still  only  a  little  farther. 
With  him  too  the  capitalists  are  "  functionaries  of  the  whole 
community  for  the  accumulation  and  employment  of  that 
national  fund  which  consists  of  the  instruments  of  production,"1 
and  profit  is  an  income  they  draw  for  this  function,  or,  at  least, 
in  this  function  (p.  594).  But  the  work  of  the  capitalist, 
as  consisting  in  the  "  accumulation  and  employment  of  private 
capitals,"  in  "  disposing  activities  and  saving  activities,"  he 
characterises  more  distinctly  than  Schaffle  as  "  labours "  (iii. 
pp.  592,  630)  which  form  a  part  of  the  total  costs  expended 
in  the  production  of  goods,  and  in  so  far  form  a  "  constitutive 
element  of  value"  (p.  630).  In  what  way  this  element 
contributes  to  the  formation  of  value  in  goods ;  how,  from 
its  efficacy,  are  derived  the  proportion  between  interest  and 
sums  of  capital,  the  height  of  interest,  and  so  on,  Wagner  tells 
us  as  little  as  Schaffle.  He  too  has  only  struck  the  key- 
note of  the  Labour  theory,  though  perhaps  a  little  more 
distinctly. 

This  being  the  case,  I  should  not  venture  to  say  positively 
whether  the  Katheder  Socialists  by  this  line  of  thought  intended 
to  give  a  theoretical  explanation  of  interest,  or  only  a  justifica- 
tion of  interest  from  the  social-political  side.  In  favour  of  the 
first  view,  there  is  (1)  the  embodying  of  the  labour  motive  in 
the  formal  definition  of  interest;  (2)  the  circumstance  that 
Wagner  at  least  has  declared  himself  so  positively  against  all 
other  interest  theories  that,  if  he  has  not  adopted  the  Labour 
theory,  he  has  left  interest,  theoretically,  quite  unexplained ; 
(3)  that  Wagner  expressly  pronounces  the  "labour  of  the 
capitalist "  to  be  a  constituent  of  the  costs  of  production,  and  a 
"  constitutive  element  of  •  value  " — a  phrase  which  it  is  difficult 
to  interpret  otherwise  than  as  meaning  that  the  theoretical 
cause  of  the  phenomenon  of  "surplus  value"  is  the  compensation 
demanded  as  return  for  the  labour  expended  by  the  capitalist. 

In  favour  of  the  second  view,  that  the  Katheder  Socialists 
have  pointed  to  the  "  capitalists'  services  "  only  as  a  ground  for 
justifying  the  present  existence  of  interest  without  meaning 
thereby  to  explain  its  existence,  there  is  (1)  the  absence  of  any 
theoretical  detail ;  (2)  the  circumstance  that  Schaffle,  at  least  so 

1  Allgemeine    oder   theorctische    Volkwirthschaftslehrc,    part  i.  Grundlegung, 
second  edition.     Leipzig  and  Heidelberg,  1879,  pp.  40,  594. 


CHAP,  i          EXPLANATION  OR  JUSTIFICATION?  309 

far  as  he  gives  any  explanation  of  details,  makes  use  of  another 
theory  of  interest ;  and  (3)  the  great  preponderance  which, 
in  the  writings  of  the  Katheder  Socialists,  is  generally  laid  on 
the  political  element  as  against  the  theoretical. 

In  the  circumstances  it  may  be  best  to  put  my  criticism 
hypothetically. 

If  it  is  the  case  that  the  Katheder  Socialists,  in  pointing  to 
the  capitalists'  "labours,"  wished  to  justify  the  existence  of 
interest  only  from  the  social-political  side,  what  they  have  said 
is,  in  the  highest  degree,  worthy  of  attention.  To  go  farther 
into  this  side  of  the  question,  however,  is  beyond  my  present 
task. 

If  it  is  the  case,  however,  that  the  Katheder  Socialists,  in 
pointing  to  the  capitalists'  "  labours,"  intended  to  explain 
interest  theoretically,  I  should  have  to  pass  the  same  judgment 
on  them  that  I  passed  on  the  French  version  of  the  Labour 
theory,  viz.  that  the  explanation  is  entirely  inadequate. 

It  has  so  often  been  the  case  in  the  historical  development 
of  dogma  that  justification  of  interest  from  the  social-political 
side  is  confused  with  theoretical  explanations  of  interest,  that 
it  may  be  worth  while  to  bring  out  very  clearly  and  once  for 
all  the  difference  between  the  two.  For  this  purpose  let  me 
put  a  parallel  case  which  may  at  the  same  time  give  me  an 
opportunity  of  showing  at  a  glance  the  inadequacy  of  the 
Labour  theory. 

With  the  first  acquisition  of  land  there  is  generally  con- 
nected a  certain  exertion  or  labour  of  the  acquirer.  Either  it 
is  that  he  must  first  make  the  ground  productive,  or  that  he 
must  take  a  certain  amount  of  trouble  to  gain  possession  of  it ; 
and  this  latter,  in  certain  circumstances,  may  not  be  trifling, 
as,  e.g.  when  it  is  preceded  by  a  prolonged  search  for  a 
locality  suitable  for  settlement.  The  land  now  bears  to  its 
acquirer  a  rent.  Can  the  existence  of  rent  be  explained  by  the 
fact  of  the  labour  originally  expended  ?  With  the  exception  of 
Carey,  and  some  few  writers  who  share  his  perverse  views,  no 
one  has  ventured  to  maintain  this.  No  one  can  maintain  it 
who  is  not  entirely  blind  to  the  connection  of  things.  It  is 
perfectly  clear  that,  when  a  fruitful  carse  bears  rent,  it  is  not 
because  its  occupation  has  at  one  time  or  other  cost  labour.  It 
is  perfectly  clear  that  if  a  rocky  hillside  bears  no  rent  it  is  not 


310  GERMAN  LABOUR   THEORIES  BOOK  v 

because  it  has  been  occupied  without  trouble.  It  is,  again, 
beyond  doubt  that  two  equally  fruitful  and  equally  well-situated 
pieces  of  land  bear  equal  rents,  even  if  the  one  that  is  fruitful  by 
nature  is  simply  taken  occupation  of  at  a  trifling  expenditure 
of  labour,  while  the  other  has  to  be  made  productive  by  a  great 
expenditure  of  labour.  Further,  it  is  clear  that,  if  200  acres 
bear  twice  as  much  rent  as  100  acres,  it  is  not  because  their 
first  occupation  was  twice  as  troublesome.  And  finally,  every 
one  can  see  that,  if  rent  rises  with  increasing  population,  the 
rising  rent  has  nothing  in  the  world  to  do  with  the  original 
expenditure  of  labour.  In  short,  it  is  clear  that  the  emergence 
and  the  amount  of  rent  do  not  in  the  least  correspond  with 
the  emergence  and  amount  of  the  labour  originally  expended 
in  the  occupation.  It  is  impossible,  then,  that  the  principle 
which  will  explain  the  phenomenon  of  rent  can  be  found  in 
the  original  expenditure  of  labour. 

Essentially  different,  however,  is  the  question  whether  the 
existence  of  rent  cannot  be  justified  by  this  expenditure  of 
labour.  In  this  case  one  may  quite  well  take  up  the  position 
that  he  who  makes  a  piece  of  ground  productive,  or  even  does 
no  more  than  occupy  it  as  the  first  pioneer  of  civilisation,  has 
merited  a  wage  as  lasting  as  the  advantage  that  thereby 
accrues  to  human  society;  that  it  is  just  and  reasonable  that  he 
who  has  put  a  piece  of  ground  under  cultivation  for  all  time 
should  for  all  time  receive  a  part  of  its  productiveness  in  the 
shape  of  rent.  I  shall  not  maintain  that  this  way  of  looking  at 
the  institution  of  private  property  in  land,  and  of  private  land- 
rents  based  on  that  institution,  must  be  conclusive  in  all 
circumstances,  but  it  certainly  may  be  so  in  some  circumstances. 
It  is,  e.g.  very  probable  indeed  that  a  colonial  government, 
anxious  to  expedite  the  settling  of  its  territory,  does  wisely 
when  it  offers,  as  premium  for  the  labour  of  cultivation  and  of 
first  occupation,  the  ownership  of  lands  brought  into  cultivation, 
and  with  that  the  right  to  a  permanent  rent.  In  this  way  the 
consideration  of  the  labour  put  forth  by  the  first  occupant  may 
furnish  quite  a  plausible  justification,  and  a  conclusive  social- 
political  motive  for  the  introduction  and  retention  of  rent,  while 
none  the  less  it  is  an  entirely  insufficient  explanation  of  it. 

It  is  exactly  the  same  with  the  relation  in  which  the  cap- 
italists'  "  saving   and  disposing    activities "  stand  to  interest. 


CHAP,  i        JUSTIFICATION  NOT  EXPLANATION  311 

In  so  far  as,  in  those  activities,  we  see  the  most  effectual  means 
to  the  accumulation  and  proper  employment  of  a  sufficient 
national  capital,  and  in  so  far  as  we  could  not  expect  that  these 
activities  would  be  forthcoming  from  private  persons  in  suffi- 
cient amount,  if  such  persons  were  not  led  to  expect  permanent 
advantages,  these  services  may  furnish  a  very  substantial 
justification  and  a  conclusive  legislative  reason  for  the  intro- 
duction aud  maintenance  of  interest.  But  it  is  an  entirely 
different  question  whether  the  existence  of  interest  can  also  be 
theoretically  explained  by  pointing  to  that  "labour."  If  it 
can  be  so  explained,  then  there  must  be  shown  some  normal 
relation  between  the  alleged  result,  the  interest  of  capital, 
and  the  asserted  cause,  the  expenditure  of  labour  on  the  part 
of  the  capitalist.  But  in  the  actual  world  we  should  look  for 
any  such  relation  in  vain.  A  million  bears  £50,000  of  inter- 
est, whether  the  saving  and  employment  of  the  million 
has  cost  its  owner  much,  little,  or  no  trouble.  A  million 
bears  ten  thousand  times  as  much  interest  as  a  hundred, 
even  if  there  should  be  infinitely  more  anxiety  and 
vexation  in  the  saving  of  the  hundred  than  in  the  saving  of  the 
million.  The  borrower  who  guards  another  man's  capital  and 
employs  it,  notwithstanding  this  "expenditure  of  labour,"  receives 
no  interest ;  the  owner  receives  it  although  his  labour  be  nil. 
Schaffle  himself  once  was  fain  to  confess:  "A  distribution 
of  wealth  according  to  amount  and  desert  of  work,  obtains 
neither  among  the  capitalists  as  compared  with  each  other, 
nor  among  the  workers  as  compared  with  the  capitalists.  The 
distribution  is  neither  guided  by  any  such  principles  nor  yet 
does  it  harmonise  with  them  accidentally." ] 

But  if  experience  shows  that  interest  stands  outside  of 
any  relation  to  the  labour  performed  by  the  capitalist,  how 
in  reason  can  the  principle  of  its  explanation  be  found  there  ? 
I  believe  the  truth  is  too  plainly  told  in  the  facts  to  need  any 
long  demonstration.  Just  as  surely  as  interest  bears  no  propor- 
tion to  the  labour  put  forth  by  the  capitalist,  does  it  stand  in 
exact  proportion  to  the  fact  of  possession  and  to  the  amount  of 
possession.  Interest  on  capital,  to  repeat  my  former  words,  is 
not  an  income  from  labour,  but  an  income  from  ownership.2 

1  Bau  und  Leben,  iii.  p.  451. 

2  It  is  much  to  be  regretted  that  of  Wagner's  theoretical  political  economy 


312  GERMAN  LABOUR   THEORIES  BOOK  v 

Thus  the  Labour  theory  of  interest  in  all  its  varieties  is 
seen  to  be  incapable  of  giving  a  theoretical  explanation  that 
will  stand  examination.  No  unbiassed  person  indeed  could 
expect  any  other  result.  No  one  but  a  person  who  takes 
particular  delight  in  far-fetched  explanations  could  for  a 
moment  doubt  that  the  economic  power  of  capital  has  some 
other  ground  behind  it  than  a  "  capacity  for  labour "  on  the 
part  of  the  capitalist.  It  is  impossible  to  doubt  that  interest, 
not  in  name  only  but  in  reality,  is  something  different  from  a 
wage  of  labour. 

That  economists  should  fall  into  various  kinds  of  Labour 
theories  can  only  be  explained  by  the  custom  prevalent 
ever  since  Adam  Smith  and  Ricardo  of  tracing  all  value  to 
labour.  To  enable  them  to  force  interest  also  into  the  unity  of 
this  theory,  and  ascribe  to  it  the  origin  which  they  supposed  to 
be  the  only  legitimate  one,  they  did  not  hesitate  at  the  most 
far-fetched  and  artificial  explanations.1 

the  part  which  specially  deals  with  the  theory  of  interest  has  not  yet  appeared. 
It  may  be  that  this  distinguished  thinker  would  have  given  such  explanations  as 
make  my  present  polemic, — which  I  have  been  careful  to  make  hypothetical, — 
superfluous. 

1  As  appendix  to  this  chapter  I  should  like,  shortly,  to  refer  to  J.  G.  Hoff- 
mann. He  also  interprets  interest  as  wage  for  certain  labours.  "Even  those 
rents,"  he  says,  meaning  rents  from  capital,  "are  only  a  wage  for  labour,  and  indeed 
for  labour  of  great  public  benefit ;  for  with  the  obtaining  of  this  wage  is  bouud 
up,  essentially  and  peculiarly,  the  duty  of  free  activity  in  the  public  welfare,  in 
science  and  skill,  in  everything  that  lightens,  ennobles,  and  adorns  human  life  " 
( Ueber  die  wahre  Natur  und  Bestimmung  der  Renten  aus  Boden — und  Kapital- 
eigenthum,  Sammlung  der  kleiner  Schriften  staatswirthschaftlichen  Inhalts, 
Berlin,  1843,  p.  566).  As  regards  Hoffmann,  even  more  than  as  regards  the 
Katheder  Socialists,  we  are  justified  in  doubting  whether  the  words  quoted  were 
meant  as  a  theoretic  explanation  of  interest.  If  they  were  so,  his  theory  is 
unquestionably  more  inadequate  than  all  the  other  Labour  theories  ;  if  they  were 
not,  it  lies  outside  my  task  to  question  their  justification. 


BOOK   VI 

THE  EXPLOITATION  THEOEY 


CHAPTER  I 

HISTORICAL   SURVEY 

WE  comet  now  to  that .  remarkable  theory  the  enunciation  of 
which,  if  not  the  most  agreeable  among  the  scientific  events  of 
our  century,  certainly  promises  to  be  one  of  the  most  serious  in 
its  consequences.  It  stood  at  the  cradle  of  modern  Socialism 
and  has  grown  up  along  with  it;  and  to-day  it  forms  the 
theoretical  centre  around  which  move  the  forces  of  attack  and 
defence  in  the  struggle  of  organising  human  society. 

This  theory  has  as  yet  no  short  distinctive  name.  If  I 
were  to  give  it  one  from  a  characteristic  of  its  chief  professors, 
I  should  call  it  the  Socialist  theory  of  interest.  If  I  were  to 
try  to  indicate  by  the  name  the  theoretic  purport  of  the  doc- 
trine itself, — which  to  my  mind  would  be  more  appropriate, 
— no  name  seems  more  suitable  than  that  of  the  Exploitation 
theory.  This  accordingly  is  the  name  I  shall  use  in  the 
sequel.  Condensed  into  a  few  sentences,  the  essence  of  the 
theory  may  be  provisionally  put  thus. 

All  goods  that  have  value  are  the  product  of  human  labour, 
and  indeed,  economically  considered,  are  exclusively  the  product 
of  human  labour.  The  labourers,  however,  do  not  retain  the 
whole  product  which  they  alone  have  produced;  for  the  cap- 
italists take  advantage  of  their  command  over  the  indispensable 
means  of  production,  as  secured  to  them  by  the  institution 
of  private  property,  to  secure  to  themselves  a  part  of  the 
labourers'  product.  The  means  of  doing  so  are  supplied  by  the 
wage  contract,  in  which  the  labourers  are  compelled  by  hunger 
to  sell  their  labour-power  to  the  capitalists  for  a  part  of  what 
they,  the  labourers,  produce,  while  the  remainder  of  the  pro- 
duct falls  as  profit  into  the  hands  of  the  capitalists,  without 


316  HISTORICAL  SURVEY  BOOK  vi 

any  exertion  on  their  part.  Interest  is  thus  a  portion  of  the 
product  of  other  people's  labour,  obtained  by  exploiting  the 
necessitous  condition  of  the  labourer. 

The  way  had  been  prepared  for  this  doctrine  long  beforehand; 
indeed  it  had  become  all  but  inevitable,  owing  to  the  peculiar 
turn  taken  by  the  economic  doctrine  of  value  since  the  time  of 
Adam  Smith,  and  particularly  since  the  time  of  Eicardo.  It 
was  taught  and  believed  that  the  value  of  all,  or  at  least  of 
by  far  the  greater  part  of  economical  goods,  is  measured  by 
the  quantity  of  labour  incorporated  in  them,  and  that  this 
labour  is  the  cause  and  source  of  the  value.  This  being  the 
case,  it  was  inevitable  that,  sooner  or  later,  people  would  begin 
to  ask  why  the  worker  should  not  receive  the  whole  value  of 
which  his  labour  was  the  cause.  And  whenever  that  question 
was  put  it  was  impossible  that  any  other  answer  could  be 
given,  on  this  reading  of  the  theory  of  value,  than  that  one 
class  of  society,  the  drone-like  capitalists,  appropriates  to  itself 
a  part  of  the  value  of  the  product  which  the  other  class,  the 
workers,  alone  produce. 

As  we  have  seen,  this  answer  is  not  given  by  the  founders  of 
the  Labour- value  theory,  Adam  Smith  and  Eicardo.  It  was  even 
evaded  by  some  of  their  first  followers,  such  as  Soden  and  Lotz, 
who  laid  great  emphasis  on  the  value-creating  power  of  labour, 
but,  in  their  total  conception  of  economic  life,  kept  close  to  the 
footsteps  of  their  master.  But  this  answer  was  none  the  less  in- 
volved in  their  theory,  and  it  only  needed  a  suitable  occasion  and 
a  logical  disciple  to  bring  it  sooner  or  later  to  the  surface.  Thus 
Adam  Smith  and  Eicardo  may  be  regarded  as  the  involuntary 
godfathers  of  the  Exploitation  theory.  They  are  indeed  treated 
as  such  by  its  followers.  They,  and  almost  they,  alone,  are 
mentioned  by  even  the  most  pronounced  socialists  with  that 
respect  which  is  paid  to  the  discoverers  of  the  "  true  "  law  of 
value,  and  the  only  reproach  made  them  is  that  they  did  not 
logically  follow  out  their  own  principles,  and  so  allowed 
themselves  to  be  prevented  from  developing  the  Exploitation 
theory  out  of  their  theory  of  value. 

Any  one  who  cares  to  hunt  up  ancient  pedigrees  of 
theories  might  discover  in  the  writers  of  past  centuries  many* 
an  expression  that  fits  in  with  the  line  of  thought  taken  by 
the  Exploitation  theory.  Not  to  speak  of  the  canonists,  who 


CHAP,  i  OF  EXPLOITATION  THEORY  317 

arrived  at  the  same  results  more  by  accident  than  anything 
else,  I  may  mention  Locke,  who  on  one  occasion  points  very 
distinctly  to  labour  as  the  source  of  all  wealth,1  and  at  another 
time  speaks  of  interest  as  the  fruit  of  the  labour  of  others ; 2 
James  Steuart,  who  expresses  himself  less  distinctly,  but  takes 
the  same  line ; 3  Sonnenfels,  who  occasionally  describes  capital- 
ists as  a  class  who  do  no  labour,  and  thrive  by  the  sweat  of 
the  labouring  classes ; 4  or  Btisch,  who  also, — treating  indeed 
only  of  contract  interest, — regards  it  as  "  a  return  to  property 
obtained  by  the  industry  of  others."  £ 

These  are  instances  which  could  very  likely  be  multiplied 
by  careful  examination  of  the  older  literature.  The  birth  of 
the  Exploitation  theory,  however,  as  a  conscious  and  coherent 
doctrine,  must  be  assigned  to  a  later  period. 

Two  developments  preceded  and  prepared  the  way  for  it. 
First,  as  mentioned  above,  it  was  the  development  and  popu- 
larising of  the  Eicardian  theory  of  value  which  supplied  the 
scientific  soil  out  of  which  the  Exploitation  theory  could 
naturally  spring  and  grow.  And,  secondly,  there  was  the 
triumphant  spread  of  capitalist  production  on  a  large  scale ; 
for  this  large  production,  while  creating  and  revealing  a  wide 
gulf  of  opposition  between  capital  and  labour,  placed  in  the 
foremost  rank  of  great  social  questions  the  problem  of  interest 
as  an  income  obtained  without  personal  labour. 

Under  those  influences  the  time  seems  to  have  become 
ready  for  the  systematic  development  of  the  Exploitation  theory 

1  Civil  Government,  book  ii.  chap.  v.  §  40  :  "Nor  is-  it  so  strange,  as  perhaps 
before  consideration  it  may  appear,  that  the  property  of  labour  should  be  able  to 
overbalance  the  community  of  land ;  for  it  is  labour  indeed  that  put  the  difference 
of  value  on  everything  ;  and  let  any  one  consider  what  the  difference  is  between 
an  acre  of  land  planted  with  tobacco  or  sugar,  sown  with  wheat  or  barley,  and  an 
acre  of  the  same  land  lying  in  common  without  any  husbandry  upon  it,  and  he 
will  find  that  the  improvement  of  labour  makes  the  far  greater  part  of  the  value. 
I  think  it  will  be  but  a  very  modest  computation  to  say  that  of  the  products  of 
the  earth  useful  to  the  life  of  man  nine-tenths  are  the  effect  of  labour,  nay,  if  we 
will  rightly  estimate  things  as  they  come  to  our  use,  and  cast  up  the  several  ex- 
penses about  them,  what  in  them  is  purely  owing  to  nature,  and  what  to  labour, 
we  shall  find  that  in  most  of  them  ninety-nine  hundredths  are  wholly  to  be  put 
on  the  account  of  labour." 

2  Considerations  of  the  Consequences  of  the  Lowering  of  Interest,  1691,  p.  24. 
See  above,  p.  45.  3  See  above,  p.  46. 

4  Handlungswissenschaft,  second  edition,  p.  430. 

5  Geldumlauf,  book  iii.  p.  26. 


318  HISTORICAL  SURVEY  BOOK  vi 

about  the  twentieth  year  of  this  century.  Among  the  first  to 
give  it  explicit  statement — in  a  history  of  theory  I  leave  out 
of  account  the  "  practical "  communists,  whose  efforts,  of  course, 
were  based  on  similar  ideas — were  Hodgskin  in  England  and 
Sismondi  in  France. 

Hodgskin's  writings — a  little  known  Popular  Political 
Economy  and  an  anonymous  publication  under  the  significant 
title  "  Labour  defended  against  the  Claims  of  Capital " T — do 
not  seem  to  have  had  any  extensive  influence.  Thus  Sismondi 
becomes  all  the  more  important  in  the  development  of  the 
theory. 

In  naming  Sismondi  as  representative  of  the  Exploitation 
theory,  I  must  do  so  with  a  certain  reservation.  It  is  that, 
although  his  theory  contains  all  the  other  essential  features 
of  that  system,  he  expresses  no  condemnatory  opinion  on 
interest.  He  is  the  writer  of  a  transition  period.  Though 
really  acquiescing  in  the  new  theory,  he  has  not  yet  broken 
with  the  old  so  completely  as  to  accept  all  the  very  extreme 
conclusions  of  the  new  position. 

For  our  purpose  the  book  which  we  have  chiefly  to  consider 
is  his  great  and  influential  Nowoeaux,  Principes  tfEwnomie 
Politiqiw?  In  it  Sismondi  connects  with  Adam  Smith.  He 
accepts  with  warm  approval  (p.  51)  Adam  Smith's  proposition 
that  labour  is  the  sole  source  of  all  wealth ; 3  complains  that 
the  three  kinds  of  income, — rent,  profit,  and  wages, — are  fre- 

1  I  may  give  a  few  characteristic  passages:    "All  the  benefits  attributed  to 
capital  arise  from  coexisting  and  skilled  labour."     After  stating  that,  by  the 
help  of  tools  and  machines,  more  products  and  better  products  can  be  created 
than  without  them,  he  adds  the  following  consideration :    ' '  But  the  question 
then  occurs,  What  produces  instruments  and  machines,  and  in  what  degree  do 
they  aid  production  independent  of  the  labourer,  so  that  the  owners  of  them  are 
entitled  to  by  far  the  greater  part  of  the  whole  produce  of  the  country  ?    Are 
they  or  are  they  not  the  product  of  labour  ?    Do  they  or  do  they  not  constitute 
an  efficient  means  of  production  separate  from  labour  ?    Are  they  or  are  they  not 
so  much  inert,  decaying,  or  dead  matter  of  no  utility  whatever,  possessing  no 
productive  power  whatever,  but  as  they  are  guided,  directed,  and  applied  by 
skilful  hands  ? "  (p.  14) 

The  numerous  writers  with  socialistic  tendencies  mentioned  by  Held  in  the 
second  book  of  his  Zur  sozialen  Geschichte  Englands  (Leipzig,  1881)  have  little 
direct  concern  with  the  theory  of  interest. 

2  First  edition,  1819.     Second  edition,  Paris,  1827.     I  quote  from  the  latter. 
8  A  proposition,  however,  which  Adam  Smith  himself  did  not  always  very 

consistently  adhere  to.  Besides  labour  he  not  seldom  mentions  land  and  capital 
as  sources  of  goods. 


CHAP,  i  OF  EXPLOITATION  THEORY  319 

quently  ascribed  to  three  different  sources,  land,  capital,  and 
labour,  while  in  reality  all  income  springs  from  labour  alone, 
these  three  branches  being  only  so  many  different  ways  of 
sharing  in  the  fruits  of  human  labour  (p.  85).  The  labourer, 
by  whose  activity  all  goods  are  produced,  has  not  been  able 
"  in  our  stage  of  civilisation  "  to  obtain  possession  of  the  means 
necessary  to  production.  On  the  one  hand,  land  is  generally 
in  the  possession  of  some  other  person  who  requires  from  the 
labourer  a  part  of  the  fruit  of  his  labour  as  compensation  for 
the  co-operation  of  this  "  productive  power."  This  part  forms 
the  land-rent.  On  the  other  hand,  the  productive  labourer  does 
not  as  a  rule  possess  a  sufficient  stock  of  the  means  of  sub- 
sistence upon  which  to  live  during  the  course  of  his  labour. 
Nor  does  he  possess  the  raw  materials  necessary  to  production 
or  the  often  expensive  tools  and  machines.  The  rich  man  who 
has  all  these  things  thus  obtains  a  certain  command  over  the 
labour  of  the  poor  man,  and,  without  himself  taking  part  in 
that  labour,  he  takes  away,  as  compensation  for  the  advantages 
which  he  places  at  the  disposal  of  the  poor  man,  the  better  part 
of  the  fruits  of  his  labour  (la  part  la  plus  importante  des  fruits 
de  son  travail).  This  share  is  the  profit  on  capital  (pp.  86, 
87).  Thus,  by  the  arrangements  of  society,  wealth  acquires 
the  capacity  of  reproducing  itself  by  means  of  the  labour  of 
others  (p.  82). 

But  although  the  labourer  produces  by  his  day's  labour 
very  much  more  than  the  day's  needs,  yet,  after  the  division  with 
the  landowner  and  the  capitalist,  there  seldom  remains  to  him 
much  more  than  his  absolutely  necessary  maintenance,  and 
this  he  receives  in  the  form  of  wages.  The  reason  for  this 
lies  in  the  dependent  position  in  which  the  labourer  is  placed 
in  relation  to  the  undertaker  who  owns  the  capital.  The 
labourer's  need  for  maintenance  is  much  more  urgent  than 
the  undertaker's  need  for  labour.  The  labourer  requires  his 
maintenance  in  order  to  live,  while  the  undertaker  requires  his 
labour  only  to  make  a  profit.  Thus  the  transaction  turns  out 
almost  invariably  to  the  disadvantage  of  the  labourer.  He  is 
in  nearly  all  cases  obliged  to  be  satisfied  with  the  barest 
'maintenance,  while  the  lion's  share  in  the  results  of  a 
productivity  which  is  increased  by  the  division  of  labour 
falls  to  the  undertaker  (p.  91,  etc.) 


320  HISTORICAL  SURVEY  BOOK  vi 

Any  one  who  has  followed  Sismondi  thus  far,  and  has 
noticed  among  others  the  proposition  that  "the  rich  spend 
what  the  labour  of  others  has  produced"  (p.  81),  must  expect 
that  Sismondi  would  end  by  condemning  interest,  and  declaring 
it  to  be  an  unjust  and  extortionate  profit.  This  conclusion, 
however,  Sismondi  does  not  draw,  but  with  a  sudden  swerve 
wanders  into  some  obscure  and  vague  observations  in  favour 
of  interest,  and  finishes  by  entirely  justifying  it.  First  of  all 
he  says  of  the  landowner  that,  by  the  original  labour  of  culti- 
vating, or  even  by  occupation  of  an  unowned  piece  of  land,  he 
has  earned  a  right  to  its  rent  (p.  110).  By  analogy  he  ascribes 
to  the  owner  of  capital  a  right  to  its  interest,  as  founded  on 
the  "  original  labour  "  to  which  the  capital  owes  its  existence 
(p.  111).  Both  branches  of  income,  which,  as  income  due  to 
ownership,  form  a  contrast  to  the  income  due  to  labour,  he 
finally  manages  to  commend  as  having  precisely  the  same 
origin  as  the  income  of  labour,  except  that  their  origin  goes  back 
to  another  point  of  time.  The  labourer  earns  yearly  a  new  right 
to  income  by  new  labour,  while  the  owner  has  acquired  at  an 
earlier  period  of  time  a  perpetual  right  in  virtue  of  an  original 
labour  which  the  yearly  labour  renders  more  profitable  (p. 
112).1  "Every  one,"  he  concludes,  "receives  his  share  in 
the  national  income  only  according  to  the  measure  of  what  he 
himself  or  his  representative  has  contributed,  or  contributes, 
towards  its  origin."  How  this  statement  can  be  said  to  agree 
with  the  former  one,  where  interest  appears  as  something  taken 
from  the  fruits  of  the  labour  of  other  people,  must  remain  a 
mystery. 

The  conclusions  that  Sismondi  did  not  venture  to  draw 
from  his  own  theory  were  soon  very  decidedly  drawn  by  others. 
Sismondi  forms  the  bridge  between  Adam  Smith  and  Ricardo  on 
the  one  side,  and  the  Socialism  and  Communism  that  succeeded 
on  the  other.  The  two  former  had,  by  their  theory  of  value, 
given  occasion  for  the  appearance  of  the  Exploitation  theory, 
but  had  in  no  way  themselves  developed  it.  Sismondi  has, 
substantially,  all  but  arrived  at  this  theory,  but  has  not  given 
it  any  social  or  political  application.  After  him  comes  the  great 
mass  of  Socialism  and  Communism  following  the  old  theory  of 

1  In  these  words  one  may  find  a  very  condensed  statement  of  James  Mill's 
labour  theory  (see  above,  p.  298). 


CHAP,  i  OF  EXPLOITATION  THEORY  321 

value  into  all  its  theoretical  and  practical  consequences,  and 
coming  to  the  conclusion  that  interest  is  plunder,  and  ought 
therefore  to  cease. 

It  would  not  be  interesting  from  the  point  of  theory  were  I 
to  excerpt,  from  the  mass  of  socialist  literature  produced  in 
this  century,  all  expressions  in  which  the  Exploitation  theory 
is  suggested  or  implied.  I  should  only  weary  the  reader  with 
innumerable  parallel  passages,  scarcely  varying  in  words,  and 
exhibiting  in  substance  a  dull  monotony ;  passages,  moreover, 
which  for  the  most  part  only  repeat  the  cardinal  propositions 
of  the  Exploitation  theory,  without  adding  to  its  proof  more 
than  a  few  commonplaces  and  appeals  to  the  authority  of 
Eicardo.  In  fact  the  majority  of  socialists  have  exercised 
their  intellectual  powers,  not  so  much  in  laying  the  foundations 
of  their  own  theory,  as  in  bitterly  criticising  the  theories  of 
their  opponents. 

Out  of  the  mass  of  writers  with  socialist  tendencies  I 
content  myself  therefore  with  naming  a  few  who  have  become 
specially  important  in  the  development  and  spread  of  this  theory. 

Among  those  the  author  of  the  Contradictions  Economiques, 
P.  J.  Proudhon,  is  pre-eminent  for  honesty  of  intention  and 
brilliant  dialectic ;  qualities  which  rendered  him  the  most 
efficient  apostle  of  the  theory  in  France.  As  we  are  more 
concerned  with  substance  than  with  form,  I  shall  not  give  any 
detailed  example  of  his  style,  but  content  myself  with  con- 
densing his  doctrine  into  a  few  sentences.  It  will  be  seen 
at  once  that,  with  the  Exception  of  a  few  peculiarities  of 
expression,  it  differs  very  little  from  the  general  scheme  of  the 
theory  as  given  at  the  beginning  of  this  chapter. 

At  the  outset  Proudhon  takes  it  for  granted  that  all  value 
is  produced  by  labour.  Thus  the  labourer  has  a  natural  claim 
to  the  possession  of  his  whole  product.  In  the  wage  contract, 
however,  he  waives  this  claim  in  favour  of  the  owner  of  capital, 
and  gets  in  return  a  wage  which  is  less  than  the  product 
he  gives  up.  Thereby  he  is  defrauded,  for  he  does  not  know 
his  natural  rights,  nor  the  extent  of  what  he  gives  up,  nor  yet 
the  meaning  of  the  contract  which  the  owner  concludes 
with  him.  And  thus  the  capitalist  avails  himself  of  error 
and  surprise,  if  not  cunning  and  fraud  (erreur  et  surprise  si 
m£me  on  ne  doit  dire  dol  ct  fraud}. 

Y 


322  HISTORICAL  SURVEY  BOOK  vi 

So  it  comes  that  at  the  present  day  the  labourer  can- 
not buy  his  own  product.  In  '•  the  market  his  product  costs 
more  than  he  has  received  in  wage;  it  costs  more  by  the 
amount  of  many  profits,  which  are  made  possible  by  the 
existence  of  the  right  of  property ;  and  these  profits  under 
the  most  various  names,  such  as  profit,  interest,  rent,  hire, 
tithe,  and  so  on,  form  just  so  many  tolls  (aubaines)  laid 
upon  labour.  For  example,  what  twenty  million  labourers 
have  produced  for  a  year's  wage  of  twenty  milliards  of  francs  is 
sold  for  the  price  (including  these  profits,  and  on  account  of 
them)  of  twenty-five  milliards.  But  this  is  equivalent  to  saying 
that  the  labourers  who  are  compelled  to  purchase  back  these 
same  products  are  forced  to  pay  five  for  that  which  they  have 
produced  for  four ;  or  that  in  -every  five  days  they  must  go 
without  food  for  one.  Thus  interest  is  an  additional  tax  on 
labour,  a  something  kept  back  (r&enue)  from  the  wages  of 
labour.1 

Equal  to  Proudhon  in  the  purity  of  his  intentions,  and  far 
surpassing  him  in  depth  of  thought  and  judgment,  though 
certainly  behind  the  impetuous  Frenchman  in  power  of  state- 
ment, is  the  German  Rodbertus. 

As  regards  the  history  of  theory  Rodbertus  is  the  weightiest 
personage  we  have  to  mention  in  this  chapter.  His  scien- 
tific importance  was  long  misunderstood,  and  that,  strangely 
enough,  precisely  on  account  of  the  scientific  character  of  his 
writings.  Not  addressing  himself,  like  others,  to  the  people, 
but  restricting  himself  for  the  most  part  to  the  theoretical 
investigation  of  the  social  problem ;  moderate  and  reserved 
in  those  practical  proposals  which,  with  the  great  majority,  are 
the  chief  objects  of  concern ;  his  reputation  for  a  while  lagged 
behind  that  of  less  important  writers  who  accepted  his  in- 
tellectual wares  at  second  hand,  and  made  them  acceptable 
by  appealing  to  popular  interests.  It  is  only  in  recent  times 
that  full  justice  has  been  done  to  this  most  amiable  socialist, 
and  that  he  has  been  recognised  as  what  he  is — the  spiritual 
father  of  modern  scientific  Socialism.  Instead  of  fiery  attacks 

1  See  Proudhon's  numerous  writings  passim,  particularly  Qu'est  ce  que  la 
propritU?  (1840  :  in  the  Paris  edition  of  1849,  p.  162),  Philosophic  de  la  Misere 
(pp.  62,  287  of  the  German  translation),  Defence  before  the  Assizes  at  Besan^on  on 
3d  February  1842  (collected  edition,  Paris,  1868,  ii.) 


CHAP,  i  OF  EXPLOITATION  THEORY  323 

and  rhetorical  antitheses,  by  which  most  socialists  are  fond  of 
drawing  a  crowd,  Eodbertus  has  left  behind  him  a  profound, 
honestly  thought-out  theory  of  the  distribution  of  goods,  which, 
erroneous  as  it  may  be  in  many  points,  contains  enough  that 
is  really  valuable  to  ensure  its  author  an  abiding  rank  among 
the  theorists  of  political  economy. 

Reserving  meanwhile  his  formulation  of  the  Exploitation 
theory  to  return  to  it  later  on  in  detail,  I  turn  to  two  of  his 
successors,  who  differ  from  each  other  as  widely  as  they 
differ  from  their  predecessor  Eodbertus.  One  of  these  is 
Ferdinand  Lassalle,  the  most  eloquent,  but,  as  regards  substance, 
the  least  original  among  the  leaders  of  Socialism.  I  only- 
mention  him  here  because  his  brilliant  eloquence  exerted  a 
great  influence  on  the  spread  of  the  Exploitation  theory ;  to  its 
theoretical  development  he  contributed  almost  nothing.  His 
doctrine  is  substantially  that  of  his  predecessors,  and  I  may 
therefore  pass  on  without  reproducing  it  in  quotations  or 
extracts,  and  merely  refer  to  some  of  the  most  -characteristic 
passages  in  a  note.1 

While  Lassalle  is  an  agitator  and  nothing  else,  Karl  Marx 
is  a  theorist,  and  indeed,  after  Eodbertus,  the  most  important 
theorist  of  Socialism.  His  doctrine  is  certainly  founded  in 
many  respects  on  the  pioneering  work  of  Eodbertus,  but  it  is 
built  up  with  some  originality  and  a  considerable  degree  of 
acute  logical  power  into  an  organic  whole.  This  theory  also 
we  shall  consider  in  detail  later  on. 

If  the  perfecting  of  the  Exploitation  theory  has  been,  par 
excellence,  the  work  of  socialist  theorists,  the  ideas  peculiar  to 
it  have  nevertheless  found  admittance  into  other  circles,  though 
in  different  ways  and  in  different  degrees.  Many  adopted  the 

1  Among  his  numerous  writings,  the  one  in  which  he  expresses  his  opinions 
on  the  interest  problem  most  fully,  and  which  most  brilliantly  displays  his 
agitator  genius,  is  fferr  Bastiat-Schulze  von  Delitzsch,  dcr  okonomischc  Julian,  oder 
Kapital  und  Arbeit  (Berlin,  1864).  The  principal  passages  are  these  :  Labour  is 
"source  and  factor  of  all  values"  (pp.  83,  122,  147).  The  labourer  does  not 
receive  the  whole  value,  but  only  the  market  price  of  labour  considered  as  a 
commodity,  this  price  being  equal  to  its  costs  of  production,  that  is,  to  bare 
subsistence  (p.  186,  etc.)  All  surplus  falls  to  capital  (p.  194).  Interest  is 
therefore  a  deduction  from  the  return  of  the  labourer  (p.  125,  and  very  scathingly 
p.  97).  Against  the  doctrine  of  the  Productivity  of  capital  (p.  21,  etc.) 
Against  the  Abstinence  theory  (p.  82,  etc.,  and  particularly  p.  110,  etc.)  See 
also  Lassalle's  other  writings. 


324  HISTORICAL  SURVEY  BOOK  vi 

Exploitation  theory  in  its  entirety,  and,  at  the  most,  only  refused 
to  acknowledge  its  last  practical  consequences.  Guth,  for 
example,  takes  this  position.1  He  accepts  all  the  essential  pro- 
jsitions  of  the  socialists,  and  accepts  them  in  their  entire  extent. 
Labour  is  to  him  the  sole  source  of  value.  Interest  arises  from 
the  fact  that,  in  virtue  of  the  unfavourable  circumstances  of 
competition,  the  wages  of  labour  are  always  less  than  the  pro- 
duct of  labour.  Indeed  Guth  does  not  scruple  to  introduce 
the  harsh  expression  Ausbeutung  for  this  fact  as  terminus 
teehnicus.  Finally,  however,  he  draws  back  from  the  practical 
consequences  of  the  doctrine  by  introducing  some  saving  clauses. 
"  Far  be  it  from  us  to  declare  that  the  Aiisbeutung  of  the 
labourer,  which  is  the  source  of  profit,  is  unjustifiable  from  a  legal 
point  of  view.  It  rests  rather  on  a  free  alliance  between  the 
employer  and  the  labourer,  which  takes  place  under  circum- 
stances of  the  market  that  are,  as  a  rule,  unfavourable  to  the 
latter."  The  sacrifice  which  the  exploited  labourer  suffers  is 
rather  an  "  advance  against  replacement."  For  the  increase  of 
capital  is  always  increasing  the  productivity  of  labour ;  con- 
sequently the  products  of  labour  grow  cheaper,  the  labourer  is 
able  to  buy  more  of  these  products  with  his  wages,  and  thus 
his  real  wages  rise.  At  the  same  time  the  labourer's  sphere 
of  employment  is  enlarged  "  on  account  of  greater  demand,  and 
his  money  wage  also  rises."  Thus  the  Ausbeutung  is  equivalent 
to  an  investment  of  capital,  which,  in  its  indirect  consequences, 
yields  the  labourer  a  rising  percentage  of  interest.2 

Dlihring  also  in  his  theory  of  interest  takes  an  entirely 
socialistic  position.  "  The  nature  of  profit  is  that  of  an 
appropriation  of  the  principal  part  of  the  return  to  labour. 
The  increase  of  the  return  and  the  saving  of  labour  are  results 
of  the  improved  and  enlarged  means  of  production.  But  the 
circumstance  that  the  hindrances  and  difficulties  of  production 
are  lessened,  and  that  bare  labour,  in  furnishing  itself  with 
tools,  renders  itself  more  productive,  does  not  give  the 
inanimate  tool  any  claim  to  absorb  a  fraction  more  than  what 
is  required  to  reproduce  it.  The  idea  of  profit  therefore  is 
not  one  that  could  be  evolved  from  the  productivity  of 

1  Div  Lehre  vom  Einkommen  in  dcsscn  Gesamintzweigcn,  1869.     I  <juote  from 
the  second  edition  of  1878. 

-  Ibid.  pp.  109,  etc.,  122,  etc.     See  also  p.  271,  etc. 


CHAP,  i  -  OF  EXPLOITATION  THEORY  325 

labour,  or  in  any  system  where  the  economical  subject  was 
looked  on  as  an  economically  self-contained  individual.  It  is 
a  form  of  appropriation,  and  is  a  creation  of  the  peculiar 
circumstances  of  distribution." l 

A  second  group  of  eclectic  writers  add  the  ideas  of  the 
Exploitation  theory  to  their  other  views  on  the  interest  problem ; 
as,  for  example,  John  Stuart  Mill  and  Schaffle.2 

Finally,  there  are  others  who  have  allowed  themselves 
to  be  swayed  by  the  impression  made  on  them  by  socialist 
writers,  and  while  not  acknowledging  the  entire  system 
of  these  writers,  have  still  accepted  individual  points  of 
importance.  The  most  noteworthy  feature  in  this  direction 
seems  to  me  the  acceptance,  by  A  considerable  number  of 
the  German  Katheder  Socialists,  of  the  old  proposition  that 
labour  is  the  sole  source  of  all  value,  the  sole  value-producing 
power. 

This  proposition,  the  acceptance  or  rejection  of  which  has 
such  an  enormous  weight  in  determining  our  judgment  of  the  most 
important  economic  phenomena,  has  had  a  peculiar  fate.  It  was 
originally  started  by  the  political  economy  of  England,  and  in  the 
first  twenty  years  or  so  after  the  appearance  of  the  Wealth  of 
Nations  it  had  gained  a  wide  circulation  along  with  Adam 
Smith's  system.  Later  on,  under  the  influence  of  Say,  who 
developed  the  theory  of  the  three  productive  factors,  nature, 
labour,  and  capital,  and  then  under  the  influence  of  Hermann 
and  Senior,  it  came  into  disrepute  with  the  majority  of  political 
economists,  even  of  the  English  school  For  a  time  the 
tradition  was  maintained  only  by  a  few  socialist  writers. 
Then  the  Katheder  Socialists  accepted  it  from  the  writings  of 
such  men  as  Proudhon,  Rodbertus,  and  Marx,  and  it  once  more 
gained  a  firm  position  in  scientific  political  economy.  At  the 
present  time  it  almost  looks  as  if  the  authority  enjoyed  by 
the  distinguished  leaders  of  that  school  was  on  the  eve  of 
starting  it  for  the  second  time  on  a  triumphant  march  round 
the  literature  of  all  nations. 

Whether  this  is  to  be  desired  or  not  will  be  shown  by  the 

1  Kursus  der  National-und  Soziulokonomic,  Berlin,  1873,  p.  183.     A  little 
further  on  (p.  185),  evidently  borrowing  from  Proudhon's  Drvit  d'Aubaine,  he 
explains  interest  as  a  "  toll "  imposed  in  return  for  the  giving  over  of  economic 
power,  the  rate  of  interest  representing  the  rate  at  which  the  toll  is  levied. 

2  See  below,  book  vii. 


326  HISTORICAL  SURVEY  BOOK  vi 

critical  examination  of  the  Exploitation  theory  to  which  I  now 
address  myself. 

In  criticising  this  theory  several  courses  were  open  to  me. 
I  might  have  criticised  all  its  representatives  individually. 
This  would  certainly  have  been  the  most  accurate  way,  but  the 
strong  resemblance  between  individual  statements  would  have 
led  to  superfluous  and  extremely  wearisome  repetitions.  Or, 
without  going  into  individual  statements,  I  might  have  directed 
my  criticism  against  the  general  scheme  that  these  individual 
statements  really  have  in  common.  In  doing  so,  however, 
there  would  have  been  a  double  difficulty.  On  the  one  hand, 
I  should  have  encountered  the  danger  of  making  too  little 
account  of  certain  individual  variations  in  the  doctrine,  and  on 
the  other  hand,  if  this  had  been  avoided,  I  should  certainly 
not  have  escaped  the  reproach  of  making  too  light  of  the 
subject,  and  of  directing  my  criticism  against  a  wilful 
caricature,  instead  of  against  the  real  doctrine.  I  decided, 
therefore,  to  take  a  third  course ;  to  select  those  individual 
statements  that  appear  to  me  the  best  and  most  complete,  and 
to  submit  them  to  a  separate  criticism. 

For  this  purpose  I  have  chosen  the  statements  of  the 
Exploitation  theory  given  by  Rodbertus  and  Marx.  They  are 
the  only  ones  that  offer  anything  like  a  firm  and  coherent 
foundation.  While  that  of  Rodbertus  is  to  my  mind  the  best, 
that  of  Marx  is  the  one  which  has  won  most  general  acceptance, 
and  the  one  which  may  to  a  certain  extent  be  regarded  as  the 
official  system  of  the  Socialism  of  to-day.  In  subjecting  these 
two  to  a  close  examination  I  think  I  am  taking  the  Exploita- 
tion theory  on  its  strongest  side,  remembering  that  fine  saying 
of  Knies,  "  He  that  would  be  victorious  on  the  field  of 
scientific  research  must  let  his  adversary  advance  fully  armed 
and  in  all  his  strength."  l 

To  avoid  misunderstandings,  one  more  remark  before 
beginning.  The  purpose  of  the  following  pages  is  to  criticise 
the  Exploitation  theory  exclusively  as  a  theory ;  that  is  to  say, 
to  investigate  whether  the  causes  of  the  economic  phenomenon 
of  interest  really  consist  in  those  circumstances  which  the  Ex- 
ploitation theory  asserts  to  be  its  originating  causes.  It  is  not 

1  Der  Kredit,  part  ii.  Berlin,  1879,  p.  7. 


CHAP,  i  OF  EXPLOITATION  THEORY  327 

my  intention  to  offer  an  opinion  in  this  place  on  the  practical 
and  social  side  of  the  interest  problem,  whether  it  is  objection- 
able or  unobjectionable,  whether  it  should  be  retained  or 
abolished.  Of  course  no  one  would  think  of  writing  a  book  on 
interest  and  remaining  silent  on  the  most  important  question 
connected  with  it.  But  I  can  only  speak  to  any  purpose  of  the 
practical  side  of  the  matter  when  the  theoretical  side  has  first 
been  made  perfectly  clear,  and  I  must  therefore  reserve  the 
examination  of  these  questions  for  my  second  volume.  I 
repeat,  then,  that  in  the  present  instance  I  shall  merely  examine 
whether  interest,  be  it  good  or  be  it  bad,  comes  into  existence 
from  the  causes  asserted  by  the  Exploitation  theory. 


CHAPTER  II 


THE  starting-point  of  Rodbertus's1  theory  of  interest  is  the 
proposition,  introduced  into  the  science  by  Adam  Smith  and 
more  firmly  established  by  the  Ricardian  school,  that  goods, 
economically  considered,  are  to  be  regarded  as  products  of 
labour  alone,  and  cost  nothing  but  labour.  This  proposition, 
which  is  usually  expressed  in  the  words  "  Labour  alone  is  pro- 
ductive," is  amplified  by  Rodbertus  as  follows : — 

1.  Only  those  goods  are  economical  goods  which  have  cost 
labour ;  all  other  goods,  be  they  ever  so  useful  or  necessary  to 
mankind,  are  natural  goods,  and  have  no  place  in  economical 
consideration. 

2.  All  economic  goods  are  the  product  of  labour  and  labour 
only ;  for  the  economic  conception  they  do  not  count  as  products 
of  nature  or  of  any  other  power,  but  solely  as  products  of  labour ; 
any  other  conception  of  them  may  be  physical,  but  it  is  not 
economic. 

3.  Goods,  economically  considered,  are  the  product  solely  of 

1  A  tolerably  complete  list  of  the  writings  of  Dr.  Karl  Rodbertus-Jagetzow 
is  to  be  found  in  Kozak's  Rodbertus'  sozialokonomische  Ansichten,  Jena,  1882, 
p.  7,  etc.  I  have  made  use  by  preference  of  the  second  and  third  Social  Letters  to 
Von  Kirchmann  in  the  (somewhat  altered)  copy  published  by  Rodbertus  in 
1875,  under  the  name  of  Zur  Bdeuchtung  der  sozialen  Fragc ;  also  of  the  tract 
Zur  Erklarung  und  Abhilfe  dcr  heutigcn  Kreditnoth  des  Grundbesitzcs ;  and  of 
the  fourth  Social  Letter  to  Von  Kirchmann  (Berlin,  1884),  published  under 
Rodbertus's  bequest  by  Adolf  Wagner  and  Kozak  under  the  name  Das  Kapital. 
A  few  years  ago  Rodbertus's  interest  theory  was  subjected  to  an  extremely  close 
and  --  conscientious  criticism  by  Knies  (Der  Kredit,  part  ii.  Berlin,  1879,  p. 
47,  etc.),  with  which  in  its  most  important  points  I  fully  agree.  I  feel  myself, 
however,  bound  to  take  up  the  task  of  criticism  independently,  my  theoretic  point 
of  view  being  so  different  from  that  of  Knies  that  I  cannot  help  looking  at  many 
things  in  an  essentially  different  light 


CHAP,  ii  RODBERTU&S  FUNDAMENTAL  PROPOSITION  329 

that  labour  which  has  performed  the  material  operations  neces- 
sary to  their  production.  But  to  this  category  belongs  not 
merely  that  labour  which  immediately  produces  the  goods,  but 
also  that  labour  which  first  creates  the  instrument  by  which 
the  goods  are  made.  Thus  grain  is  not  merely  the  product  of 
the  man  who  held  the  plough,  but  also  of  him  who  made  the 
plough,  and  so  on.1 

The  fundamental  proposition  that  all  goods,  economically 
considered,  are  the  product  of  labour  alone,  has  with  Eodbertus 
very  much  the  claim  of  an  axiom.  He  considers  it  a  proposition 
about  which,  "  in  the  advanced  state  of  political  economy,  there 
is  no  longer  any  dispute ; "  it  is  naturalised  among  English 
economists,  has  its  representatives  among  those  of  France,  and, 
"what  is  most  important,  in  spite  of  all  the  sophisms  of  a 
retrograde  and  conservative  doctrine,  is  indelibly  imprinted  upon 
the  consciousness  of  the  people."  5  Only  once  do  I  find  any 
attempt  in  Rodbertus  to  put  this  proposition  on  a  rational 
foundation.  He  says  that  "  every  product  that  comes  to  us 
through  labour  in  the  shape  of  a  good  ought  to  be  put  solely 
to  the  account  of  human  labour,  because  labour  is  the  only 
original  power,  and  also  the  only  original  cost  with  which 
human  economy  is  concerned."  3  This  proposition  also  is  put 
down  as  an  axiom,  and  Rodbertus  does  not  go  any  farther  into 
the  subject. 

The  actual  labourers  who  produce  the  entire  product  in  the 
shape  of  goods  have,  at  least  "according  to  the  pure  idea  of 
justice,"  a  natural  and  just  claim  to  obtain  possession  of  this 
entire  product.4  But  this  with  two  rather  important  limita- 
tions. First,  the  system  of  the  division  of  labour,  under  which 
many  co-operate  in  the  production  of  one  product,  makes  it 
technically  impossible  that  each  labourer  should  receive  his 
product  in  natura.  There  must  therefore  be  substituted,  for 
the  claim  to  the  whole  product,  the  claim  to  the  whole  value 
of  the  product.5 

Further,  all  those  who  render  society  useful  services  with- 
out immediately  co-operating  in  the  material  producing  of  the 

1  Zur  Beleuchtung  dcr  sozialen  Fraijc,  pp.  68,  69. 

2  Soziale  Frage,  p.  71. 

3  Erklarung  und  Abhilfc,  ii.  p.  160  note. 

4  Soziale  Frage,  p.  56  ;  Erklarung,  p.  112. 

5  Soziale  Frage,  pp.  87  90  ;  Erklarung,  p.  Ill  ;  Kapital,  p.  116. 


330  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

goods  must  have  a  share  in  the  national  product ;  such,  for 
example,  as  the  clergyman,  the  physician,  the  judge,  the  scien- 
tific investigator,  and,  in  Kodbertus's  opinion,  even  the  under- 
takers, who  "  understand  how  to  employ  a  number  of  labourers 
productively  by  means  of  a  capital."  1  But  such  labour,  being 
only  "  indirect  economic  labour,"  may  not  put  in  its  claim  of 
payment  at  the  "  original  distribution  of  goods, "  in  which  the 
producers  alone  take  part,  but  only  at  a  "  secondary  distribution 
of  goods."  What  then  is  the  claim  which  the  actual  labourers 
have  to  put  forward,  according  to  the  pure  idea  of  justice  ?  It 
is  a  claim  to  receive  the  entire  value  of  the  product  of  their 
labour  in  the  original  distribution,  without  prejudice  to  the 
secondary  claims  on  salary  of  other  useful  members  of  society. 

This  natural  claim  Rodbertus  does  not  find  recognised  in 
present  social  arrangements.  The  labourers  of  to-day  receive 
as  wages,  in  the  original  distribution,  only  a  part  of  the 
value  of  their  product,  while  the  remainder  falls  as  rent  to 
the  owners  of  land  and  capital. 

Rent  is  defined  by  Rodbertus  as  "all  income  obtained 
without  personal  exertion  solely  in  virtue  of  possession." 2  It 
includes  two  kinds  of  rent — land-rent  and  profit  on  capital. 

Rodbertus  then  asks,  As  every  income  is  the  product  of 
labour  alone,  what  is  the  reason  that  certain  persons  in  society 
draw  incomes  (and,  moreover,  original  incomes)  without  stirring 
a  finger  in  the  work  of  production  ?  In  this  question  Rodbertus 
has  stated  the  general  theoretical  problem  of  the  theory  of  rent.3 
The  answer  he  gives  is  the  following : — 

Rent  owes  its  existence  to  the  coincidence  of  two  facts,  one 
economical  and  one  legal  The  economic  ground  of  rent  lies 
in  the  fact  that,  since  the  introduction  of  the  division  of  labour, 
the  labourers  produce  more  than  they  require  to  support  them- 
selves in  life  and  to  allow  them  to  continue  their  labour, 
and  thus  others  also  are  able  to  live  upon  the  product.  The 
legal  ground  lies  in  the  existence  of  private  property  in  land 
and  capital.  As,  therefore,  through  the  existence  of  private 
property  the  labourers  have  lost  all  control  over  the  conditions 
that  are  indispensable  to  production,  they  cannot,  as  a  rule,  do 
otherwise  than  produce  in  the  service  of  the  proprietors,  and 

1  Soziale  Frage,  p.  146  ;  Erkldrung,  ii.  p.  109,  etc. 
2  Soziale  Frage,  p.  32.  3  Ibid.  \.   74,  etc. 


CHAP,  ii  CONDITIONS  OF  KENT  331 

that  according  to  an  agreement  previously  made.  These  pro- 
prietors impose  upon  the  labourers  the  obligation  of  surrendering 
a  part  of  the  product  of  their  labour  as  rent,  in  return  for  the 
opportunity  of  using  the  conditions  of  production  just  mentioned. 
Indeed  this  surrender  even  takes  an  aggravated  form,  for  the 
labourers  have  to  give  up  to  the  owners  the  possession  of  their 
entire  product,  receiving  back  from  the  owners  only  a  part 
of  its  value  as  wage,  and  a  part  that  is  no  more  than  the 
labourers  absolutely  require  to  keep  them  in  life  and  allow  them 
to  continue  their  labour.  The  power  which  forces  the  labourers 
to  agree  to  this  contract  is  Hunger.  To  let  Rodbertus  speak  for 
himself : — 

"  As  there  can  be  no  income  unless  it  is  produced  by  labour, 
rent  rests  on  two  indispensable  conditions.  First,  there  can 
be  no  rent  if  labour  does  not  produce  more  than  the  amount 
which  is  just  necessary  to  the  labourers  to  secure  the  continu- 
ance of  their  labour,  for  it  is  impossible  that  without  such  a 
surplus  any  one,  without  himself  labouring,  can  regularly 
receive  an  income.  Secondly,  there  could  be  no  rent  if 
arrangements  did  not  exist  which  deprive  the  labourers  of  this 
surplus,  either  wholly  or  in  part,  and  .give  it  to  others  who  do 
not  themselves  labour,  for  in  the  nature  of  things  the  labourers 
themselves  are  always  the  first  to  come  into  possession  of  their 
product.  That  labour  yields  such  a  surplus  rests  on  economic 
grounds  that  increase  the  productivity  of  labour.  That  this 
surplus  is  entirely  or  in  part  withdrawn  from  the  labourers 
and  given  to  others  rests  on  grounds  of  positive  law ;  and  as 
law  has  always  united  itself  with  force  it  only  effects  this 
withdrawal  by  continual  compulsion. 

"  The  form  which  this  compulsion  originally  took  was 
slavery,  the  origin  of  which  is  contemporaneous  with  that  of 
agriculture  and  landed  property.  The  labourers  who  produced 
such  a  surplus  in  their  labour-product  were  slaves,  and  the 
master  to  whom  the  labourers  belonged,  and  to  whom  conse- 
quently the  product  itself  also  belonged,  gave  the  slaves  only  so 
much  as  was  necessary  for  the  continuance  of  their  labour,  and 
kept  the  remainder  or  surplus  to  himself.  If  all  the  land,  and  at 
the  same  time  all  the  capital  of  a  country,  have  passed  into  private 
property,  then  landed  property  and  property  in  capital  exert  a 
similar  compulsion  even  over  freed  or  free  labourers.  For,  first, 


332  RODBERTUS S  EXPLOITATION  THEORY     BOOK  vi 

the  result  will  be  the  same  as  in  slavery,  that  the  product  will 
not  belong  to  the  labourers,  but  to  the  masters  of  land  and 
capital ;  and  secondly,  the  labourers  who  possess  nothing,  in 
face  of  the  masters  possessing  land  and  capital,  will  be  glad  to 
receive  a  part  only  of  the  product  of  their  own  labour  with 
which  to  support  themselves  in  life ;  that  is  to  say,  again,  to 
enable  them  to  continue  their  labour.  Thus,  although  the  con- 
tract of  labourer  and  employer  has  taken  the  place  of  slavery, 
the  contract  is  only  formally  and  not  actually  free,  and  Hunger 
makes  a  good  substitute  for  the  whip.  What  was  formerly 
called  food  is  now  called  wage."  1 

Thus,  then,  all  rent  is  an  exploitation,'2  or,  as  Rodbertus 
sometimes  calls  it  still  more  forcibly,  a  robbery  of  the  product 
of  other  people's  labour.8  This  character  applies  to  all  kinds  of 
rent  equally;  to  land-rent  as  well  as  to  profit  on  capital,  and  to 
the  emoluments  of  hire  and  loan  interest  derived  from  them. 
Hire  and  interest  are  as  legitimate  in  connection  with  the 
undertakers  as  they  are  illegitimate  in  connection  with  the 
labourers,  at  whose  cost,  in  the  last  resort,  they  are  paid.4 

The  amount  of  rent  increases  with  the  productivity  of 
labour ;  for  under  the  system  of  free  competition  the  labourer 
receives,  universally  and  constantly,  only  the  amount  necessary 
for  his  maintenance — that  is,  a  definite  quantum  of  the  product. 
Thus  the  greater  the  productivity  of  labour  the  less  will  be  the 
proportion  of  the  total  value  of  the  product  claimed  by  this 
quantum,  and  the  greater  will  be  the  proportion  of  the  product 
and  of  the  value  remaining  over  to  the  proprietor  as  his  share, 
as  rent.5 

Although,  according  to  what  has  been  already  said,  all  rent 
i'orms  a  homogeneous  mass  having  one  common  origin  in 
practical  economic  life,  it  is  divided  into  two  branches,  land-rent 
and  profit  on  capital.  Rodbertus  then  explains  the  reason  and 
the  laws  of  this  division  in  a  most  peculiar  way.  He  starts 
from  the  theoretical  assumption,  which  he  carries  through  all  his 
investigation,  that  the  exchange  value  of  all  products  is  equal 

1  Sozialc  Frage,  p.  33  ;  similarly  and  more  in  detail,  pp.  77-94. 

2  Ibid.  p.  115,  and  other  places. 

3  Ibid.  p.  150  ;  Kapital,  p.  202. 

4  Sozialv  Fragc,  pp.  115,  148,  etc.     See  also  the  criticism  of  Bastiat,  pp.  115- 
119. 

5  Ibid.  p.  123,  etc- 


CHAP,  ii  LAND  -  RENT  AND  PROFIT  333 

to  their  labour-costs  ;  in  other  words,  that  all  products  exchange 
with  each  other  in  proportion  to  the  labour  they  have  cost.1 
Rodbertus  indeed  is  aware  that  this  assumption  does  not  exactly 
correspond  with  reality.  Still  lie  believes  that  the  deviations 
amount  to  nothing  more  than  that  "  the  actual  exchange  value 
falls  sometimes  on  the  one  side,  sometimes  on  the  other,"  in 
which  cases  there  is  at  least  always  a  point  towards  which  they 
gravitate,  "that  point  being  the  natural  as  well  as  the  just 
exchange  value."2  He  entirely  rejects  the  idea  that  goods 
normally  exchange  with  each  other  according  to  any  other  pro- 
portion than  that  of  the  labour  incorporated  in  them;  that 
deviations  from  this  proportion  may  be  the  result,  not  merely 
of  accidental  and  momentary  fluctuations  of  the  market,  but  of 
a  fixed  law  drawing  the  value  in  another  direction.3  At  this 
stage  I  merely  tdraw  attention  to  the  circumstance,  and  will 
show  its  importance  later  on. 

The  total  production  of  goods  may,  according  to  Eodbertus, 
be  divided  into  two  branches — raw  production,  which  with  the 
assistance  of  land  obtains  raw  products,  and  manufacture  which 
works  up  the  raw  products.  Before  division  of  labour  was 
introduced  the  obtaining  and  working  up  of  raw  products  were 
performed  in  immediate  succession  by  one  undertaker,  who  then 
received  without  division  the  whole  resulting  rent.  In  this 
stage  of  economic  development  there  was  no  separation  of  rent 
into  land-rent  and  profit  on  capital.  But,  since  the  introduction 
of  the  division  of  labour,  the  undertaker  of  the  raw  production 
and  the  undertaker  of  the  manufacture  which  follows  it  are 
distinct  persons.  The  preliminary  question  is,  In  what  pro- 
portion will  the  rent  that  results  from  the  total  production  now 
be  divided  among  the  producers  of  the  raw  material  on  the  one 
hand  and  the  manufacturers  on  the  other  ? 

The  answer  to  this  question  follows  from  the  character  of 
rent.  Rent  is  a  proportion  of  and  deduction  from  the  value  of 
the  product.  The  amount  of  rent  that  can  be  obtained  in  any 
branch  of  production  is  regulated  by  the  value  of  the  product 
created  in  this  branch  of  production.  As,  however,  the  amount 
of  the  value  of  the  product  is  regulated  here  also  by  the  amount 

1  Soziale  Fragc,  p.  106. 

2  Ibid.  p.  107  ;  similarly  pp.  113,  147.   Erklarung,  i.  p.  123. 

3  Soziale  Fraijc,  p.  148. 


334  RODBERTUS' S  EXPLOITATION  THEORY     BOOK  vi 

of  the  labour  spent  on  it,  the  total  rent  will  be  divided  between 
raw  production  and  manufacture,  according  to  the  expenditure 
of  labour  in  each  of  these  branches.  To  illustrate  this  by  a 
concrete  example.1  Say  that  it  requires  1000  days  of  labour 
to  obtain  a  certain  amount  of  raw  product,  and  that  its 
manufacture  requires  2000  days  more;  then  if  rent  takes 
40  per  cent  of  the  value  of  the  product  as  the  share  of 
the  owners,  the  product  of  400  days  of  labour  will  fall  as 
rent  to  the  producers  of  raw  material,  and  the  product  of  800 
days  of  labour  as  rent  to  the  manufacturing  undertakers.  On 
the  other  hand,  the  amount  of  capital  employed  in  each  branch 
of  production  is  a  matter  of  no  consequence  as  regards  this 
division,  for  though  the  rent  is  estimated  in  relation  to  this 
capital,  it  is  not  determined  by  it,  but  by  the  amount  of 
labour  supplied. 

Now  the  very  fact  that  the  amount  of  capital  employed 
has  no  causal  influence  on  the  amount  of  rent  obtainable  in 
any  branch  of  production  becomes  the  cause  of  land -rent. 
Rodbertus  proves  this  in  the  following  manner. 

Rent  is  the  product  of  labour.  But  it  is  conditioned  by 
the  possession  of  wealth.  Therefore  rent  is  looked  on  as 
a  return  to  that  wealth.  In  manufacture  this  wealth 
takes  the  form  of  capital  alone,  and  not  of  land.  Thus  the 
total  rent  obtained  in  manufacture  is  regarded  as  return  on 
capital,  or  profit  on  capital.  And  thus  by  calculating,  in  the 
usual  way,  the  proportion  between  the  amount  of  return  and 
the  amount  of  the  capital  on  which  the  return  is  obtained,  we 
come  to  say  that  a  definite  percentage  of  profit  is  obtainable 
from  capital  engaged  in  manufacture.  In  virtue  of  well-known 
tendencies  of  competition  this  rate  of  profit  will  approximate  to 
equality  in  all  branches,  and  will  also  become  the  standard 
for  calculating  the  profit  of  capital  engaged  in  raw  produc- 
tion ;  for  a  much  greater  portion  of  the  national  capital  is 
engaged  in  manufacture  than  in  agriculture,  and  obviously  the 
return  of  the  greater  portion  of  capital  must  dictate  to  the 
smaller  portion  the  rate  at  which  its  profit  shall  be  calculated. 
Therefore  the  raw  producers  must  calculate,  as  profit  on  their 
capital,  so  much  of  the  total  rent  gained  in  the  raw  production 

1  This  illustration  is  not  given  by  Rodbertus  ;  I  only  add  it  to  put  the  difficult 
line  of  argument  more  clearly. 


CHAP,  ii  CAUSE  OF  LAND -RENT  335 

as  corresponds  with  the  amount  of  capital  that  has  been 
employed  and  with  the  usual  rate  of  profit.  The  remainder 
of  the  rent,  on  the  other  hand,  must  be  considered  as  return 
from  land,  and  forms  the  land-rent. 

Now,  according  to  Eodbertus,  there  must  always  be  such 
a  remainder  in  raw  production,  in  virtue  of  the  assumption 
that  products  exchange  in  proportion  to  the  amount  of  labour 
incorporated  in  them.  He  proves  this  as  follows.  The 
amount  of  rent  obtainable  in  manufacture  depends,  as  we  have 
seen,  not  on  the  amount  of  the  capital  laid  out,  but  on  the 
quantity  of  labour  performed  in  the  manufacture.  This  labour 
is  made  up  of  two  constituent  parts ;  on  the  one  side,  the 
immediate  labour  of  manufacture,  on  the  other  side,  that 
indirect  labour  "  which  must  also  be  taken  into  calculation  as 
representing  the  tools  and  machines  used."  Therefore  of  the 
different  constituent  portions  of  the  capital  laid  out,  only  those 
portions  will  affect  the  amount  of  rent  which  consist  of  wages 
and  expenditure  for  machines  and  tools.  On  the  other  hand, 
no  such  influence  affects  the  capital  laid  out  in  raw  materials, 
because  this  outlay  does  not  express  any  labour  performed  in 
the  manufacturing  stage.  Yet  this  part  of  the  outlay  increases 
the  capital  on  which  the  rent  obtainable  as  return  is  calculated. 
The  existence  of  a  portion  of  capital  which  increases  the 
manufacturing  capital  on  which  the  share  of  the  rent  that  falls 
to  it  as  -profit  is  calculated,  while  it  does  not  increase  this  profit 
itself,  must  evidently  lower  the  proportion  of  the  profit  to 
the  capital ;  in  other  words,  it  must  lower  the  rate  of  profit  on 
capital  engaged  in  manufacture. 

Now  the  profit  on  capital  engaged  in  raw  production  also 
will  be  calculated  at  this  reduced  rate.  But  here  (in  raw  pro- 
duction) the  circumstances  are  generally  more  favourable.  For 
as  agriculture  begins  production  ab  ovo,  and  does  not  work 
up  material  derived  from  a  previous  production,  its  outlay 
of  capital  has  no  constituent  "value  of  material."  The 
analogue  of  material  is  simply  land,  and  land  in  all  theories  is 
assumed  to  cost  nothing.  Hence  no  portion  of  capital  has  any 
share  in  the  division  of  the  profit  which  does  not  also  have  an 
influence  upon  its  amount,  and  hence  also  the  proportion 
between  the  rent  gained  and  the  capital  employed  must  be 
more  favourable  in  agriculture  than  in  manufacture.  As 


336  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

however,  in  agriculture  also,  the  profit  on  capital  is  calculated 
at  the  reduced  rate  determined  by  manufacture,  there  must 
always  remain  a  surplus  of  rent,  which  falls  to  the  landowner 
as  land-rent.  This,  according  to  Eodbertus,.  is  the  origin  of 
land-rent,  and  its  distinction  from  profit  on  capital.1 

I  may  shortly  supplement  this  by  remarking  that,  notwith- 
standing the  very  severe  theoretical  judgment  that  he  pro- 
nounces on  profit  in  describing  it  as  plunder,  Eodbertus  will 
not  hear  of  abolishing  either  private  property  in  capital  or 
profit  on  capital.  Nay,  he  ascribes  to  property  in  land  and 
capital  "  an  educating  power "  which  we  cannot  spare ;  a 
"  kind  of  patriarchal  power  that  could  only  be  replaced  after  a 
completely  altered  system  of  national  instruction,  for  which  at 
present  we  have  not  got  even  the  conditions."  2  Property  in 
land  and  capital  appear  to  him  in  the  meanwhile  to  have  "a 

1  Soziale  Fragc,  p.  94,  etc.  ;  particularly  pp.  109-111.     Erkldrung,  i.  p.  123. 

It  may  be  advisable,  in  the  interest  of  the  English  reader,  to  put  this  theory 
of  land-rent  in  a  different  way. 

According  to  Rodbertns,  all  rent  is  a  deduction  from  product,  and  an  exploita- 
tion of  the  labour  that  produces  the  product.  Both  land-rent  then  and  capital- 
rent  (profit)  must  be  accounted  for  by  this  deduction,  and  only  by  this  deduction. 
Now  rent  cannot  emerge  at  all  unless  the  necessary  resources  are  provided.  The 
owners  give  these  resources  ;  the  labourer  works  with  them  ;  the  owner  takes 
his  rent  from  the  product,  and,  naturally  enough,  calculates  it  as  a  percentage 
on  the  amount  of  the  resources  he  provides.  In  reality,  however,  rent  does  not 
depend  on  the  amount  and  duration  of  these  resources,  but  on  the  amount  of 
labour  employed  and  exploited. 

But.  resources  are  of  two  kinds,  land  and  capital.  In  manufacturing  the 
resources  consist  of  capital  alone.  The  profit  exploited  from  the  manufacturing 
labourers  is  calculated  as  a  rate  on  the  capital,  and  comes  to  be  ascribed  to  the 
capital.  Under  the  competitive  system  profits  tend  to  an  equality  over  the  whole 
field,  and  accordingly  we  should  expect  the  landowner  to  get  simply  the  same 
rent  for  the  resources  he  lends  (land)  as  the  capitalist  gets  for  the  resources  he 
lends  (capital).  But  as  a  fact  the  landowner  gets  more  ;  in  fact,  sufficient  to 
pay  another  rent,  which  is  properly  called  land-rent.  How  is  this  ? 

The  reason  is  that  in  manufacture  there  are  two  outlays  of  capital,  one  for 
wages  and  one  for  raw  materials.  But  there  is  only  one  field  of  exploitation, 
wages.  There  is,  then,  in  manufacturing  a  portion  of  capital  employed  which 
yields  no  profit,  and  the  profit  that  is  made  in  the  total  manufacture,  being 
calculated  on  this  portion  plus  the  portion  employed  in  paying  wages,  the  rate 
of  profit  is  lower  than  it  would  be  otherwise. 

Now  in  agriculture  there  is  indeed  only  one  source  of  rent  or  profit,  labour, 
but  there  is  no  outlay  for  raw  materials.  The  profit  thus  in  agriculture  is 
calculated  on  a  smaller  capital,  and  so  must  leave,  over  and  above  the  ordinary 
manufacturing  rate  of  profit,  a  surplus  which  is  land-rent. — W.  S. 

2  Erkldrung,  ii.  p.  303. 


CHAP,  ii  CRITICISM  337 

kind  of  official  position  involving  the  national  functions  of 
managing  the  economic  labour  and  the  economic  resources  of 
the  nation  in  correspondence  with  national  need." 

Thus  from  this,  its  most  favourable  point  of  view,  rent 
may  be  regarded  as  a  form  of  salary  which  certain  "  officers  " 
receive  for  the  execution  of  their  functions.1  I  have  already 
observed  above  how  this  remark,  casually  expressed  in  a 
mere  note,  formed  the  basis  on  which  later  writers,  particu- 
larly Schaffle,  have  built  up  a  peculiar  form  of  the  Labour 
theory. 

To  come  now  to  criticism  of  Rodbertus's  system.  Without 
circumlocution  I  may  say  at  once  that  I  consider  the  theory 
which  it  contains  to  be  an  entire  failure.  I  am  convinced 
that  it  suffers  from  a  series  of  grave  theoretical  defects  which 
I  shall  endeavour  to  set  forth  in  the  following  pages  as  clearly 
and  as  impartially  as  may  be. 

At  the  outset  I  am  obliged  to  take  exception  to  the  very 
first  stone  that  Eodbertus  lays  in  the  structure  of  his 
system — the  proposition  that  all  goods,  economically  .  con- 
sidered, are  products  of  labour  and  of  labour  alone. 

First  of  all,  what  do  the  words  "  economically  considered  " 
mean  ?  Eodbertus  explains  them  by  a  contrast.  He  puts  the 
economical  standpoint  in  opposition  to  the  physical  standpoint. 
That  goods,  physically  speaking,  are  the  products  not  only  of 
labour  but  of  natural  powers,  he  explicitly  allows.  If  then  it 
is  said  that,  from  the  economic  standpoint,  goods  are  the  pro- 
duct of  labour  only,  the  statement  can  surely  have  but  one 
meaning,  viz.  that  the  co-operation  of  natural  powers  in 
production  is  a  matter  of  utter  indifference  so  far  as  human 
economy  is  concerned.  On  one  occasion  Rodbertus  gives 
forcible  expression  to  this  conception  when  he  says  :  "  All  other 
goods  except  those  that  have  cost  labour,  however  useful  or 
necessary  they  may  be  to  mankind,  are  natural  goods,  and  have 
no  place  in  economic  consideration."  "  Man  may  be  thankful  for 
what  nature  has  done  beforehand  in  the  case  of  economic  goods, 
as  it  has  spared  him  so  much  extra  labour,  but  economy  takes 

1  Erklarung,  p.  273,  etc.  In  the  posthumous  tract  on  "Capital"  Rodbertus 
expresses  himself  more  severely  on  the  subject  of  private  property  in  capital,  and 
would  have  it  redeemed,  if  not  abolished  (p.  116,  etc.) 

Z 


333  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

notice  of  them  only  in  so  far  as  labour  has  completed  the 
work  of  nature."  1 

Xow  this  is  simply  false.  Even  purely  natural  goods 
have  a  place  in  economic  consideration,  provided  only  they 
are  scarce  as  compared  with  the  need  for  them.  If  a  lump  of 
solid  gold  in  the  shape  of  a  meteoric  stone  falls  on  a  man's 
field,  is  it  not  to  be  economically  considered  ?  Or  if  a  silver 
mine,  is  discovered  by  chance  on  his  estate,  is  the  silver  not 
to  be  economically  considered  ?  Will  the  owner  of  the  field 
really  pay  no  attention  to  the  gold  and  silver  given  him  by 
nature,  or  give  them  away,  or  waste  them,  simply  because  they 
were  bestowed  on  him  by  nature  without  exertion  on  his  part  ? 
Will  he  not  preserve  them  just  as  carefully  as  he  would  gold 
and  silver  that  he  had  earned  by  the  labour  of  his  hands ; 
place  them  in  security  from  the  greed  of  others ;  cautiously 
convert  them  into  money  in  the  market — in  short,  treat  them 
economically  ?  And  again,  is  it  true  that  economy  has  regard 
to  those  goods  which  have  cost  labour  only  in  so  far  as  labour 
has  completed  the  work  of  nature  ?  If  that  were  the  case, 
men  acting  economically  would  have  to  put  a  cask  of  the 
most  exquisite  Rhine  wine  on  the  same  level  with  a  cask  of 
well -made  but  naturally  inferior  country  wine,  for  human 
labour  has  done  pretty  much  the  same  for  both.  That,  not- 
withstanding this,  the  Rhine  wine  is  often  valued  economically 
at  ten  times  the  amount  of  the  other,  is  a  striking  confutation 
of  Rodbertus's  theorem  at  the  hands  of  everyday  experience. 

All  this  is  so  obvious  that  we  might  fairly  expect 
Rodbertus  to  have  taken  every  precaution  to  guard  this,  his 
first  and  most  important  fundamental  proposition,  against  such 
objections.  In  this  expectation,  however,  we  are  disappointed. 
With  peculiar  carelessness  he  is  content  on  almost  every 
occasion  to  assert  this  proposition  in  the  tone  of  an  axiom. 
Sometimes  he  appeals  on  its  behalf  to  the  authority  of  Adam 
Smith  and  Ricardo,  and  only  on  one  single  occasion  does  he  say 
anything  that  might  be  construed  as  an  attempt  to  give  it 
uny  real  foundation. 

The  critic  will  scarcely  be  satisfied  with  such  poor  support 
for  a  proposition  so  important.  As  regards  the  authorities 
appealed  to,  in  a  scientific  discussion  authorities  in  themselves 

1  SoziaU  Fragr,  p.  69. 


CHAP,  ii  GOODS  AS  LABOUR- PRODUCTS  339 

prove  nothing.  Their  strength  is  simply  the  strength  of  the 
arguments  which  they  represent.  But  we  shall  shortly  have 
an  opportunity  of  convincing  ourselves  that  Adam  Smith  and 
Eicardo  merely  assert  the  proposition  as  an  axiom  without 
giving  any  kind  of  argument  for  it.  Moreover,  as  Knies  has 
on  a  recent  occasion  very  properly  pointed  out,1  Adam  Smith 
and  Eicardo  themselves  have  not  held  consistently  to  it. 

In  the  one  seriously  argued  passage  Eodbertus  says :  "  Every 
product  that  comes  to  us  through  labour  in  the  shape  of  a  good 
is,  economically  speaking,  to  be  placed  to  the  credit  of  human 
labour  alone,  because  labour  is  the  only  original  power,  and  also 
the  only  original  cost  with  which  human  economy  is  concerned."2 
As  regards  this  argument,  however,  one  may  seriously  doubt, 
in  the  first  place,  whether  the  premiss  made  use  of  is  itself 
correct,  and  Knies  has  shown  that  there  is  good  reason  for 
questioning  it.3  And  in  the  second  place,  even  if  the  premiss 
be  correct,  the  conclusion  is  not  necessarily  so.  Even  if 
labour  actually  were  the  sole  original  power  with  which 
human  economy  has  anything  to  do,  I  do  not  at  all  see  why  it 
should  not  be  desirable  to  act  economically  in  regard  to  some 
things  besides  "  original  powers."  Why  not  in  regard  to 
certain  results  of  these  original  powers,  or  to  the  results  of 
other  original  powers  ?  Why  not,  for  instance,  with  the  golden 
meteorite  we  spoke  of  ?  Why  not  with  the  precious  stone 
we  accidentally  find  ?  Why  not  with  natural  deposits  of 
coal  ?  Eodbertus  lias  too  narrow  a  conception  both  of  the 
nature  and  of  the  motive  of  economy.  We  deal  economically 
with  the  original  power,  labour,  because,  as  Eodbertus  quite 
correctly  says,  "Labour  is  limited  by  time  and  strength,  because 
in  being  employed  it  is  expended,  and  because  in  the  end  it  robs 
us  of  our  freedom."  But  all  these  are  only  secondary  motives, 

1  Krcdit,  part  second,  ]>.  60,  etc. 

-  Erkliirtmij  und  AbhiJfc,  ii.  p.  160  ;  similarly  Sozialc  Frayc,  p.  69. 

:J  Dfr  Krcdit,  pai't  second,  p.  69  :  "What  Rodbcrtus  brings  forward  as  his 
sole  reason,  vix.  that  '  labour  is  the  only  original  power,  and  also  the  only 
original  cost  with  which  human  economy  is  concerned,'  is  simply,  in  point  of 
fact,  untrue.  What  surprising  blindness  it  is  not  to  see  that  in  the  case  of  a 
landlord  the  effectual  power  of  the  soil  in  our  limited  fields  could  not  be 
allowed  '  to  lie  dead '  by  uneconomic  men,  could  not  be  wasted  in  growing 
weeds,  etc.  etc.  So  absurd  an  opinion  would  certainly  in  the  long  run  justify 
any  one  in  defending  the  proposition  that  the  loss  to  a  landlord  of  X  acres,  and  the 
loss  to  a  people's  economy  of  Y  square  miles,  represents  no  'economical  loss.'" 


340  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

not  the  final  motive  for  our  economic  conduct.  In  the 
last  resort  we  deal  economically  with  limited  and  toilsome 
labour  because  we  should  suffer  loss  of  wellbeing  by  an 
uneconomic  treatment.  But  exactly  the  same  motive  impels 
us  to  deal  economically  with  every  other  useful  thing  which, 
as  existing  in  a  limited  quantity,  we  could  not  want  or  lose 
without  losing  something  of  the  enjoyment  of  life.  It  matters 
not  whether  it  be  an  original  power  or  not ;  whether  the  thing 
has  cost  the  joriginal  power  we  call  labour  or  not. 

Finally,  the  position  taken  by  Eodbertus  becomes  entirely 
untenable  when  he  adds  that  goods  are  to  be  regarded  as  the 
products  of  material  manual  labour  alone.  This  principle  would 
forbid  even  direct  intellectual  guidance  of  labour  from  being 
recognised  as  having  any  productive  function,  and  would  lead 
to  an  amount  of  internal  contradiction  and  false  conclusion 
that  leaves  no  doubt  of  its  incorrectness.  This,  however,  has 
been  shown  by  Knies  in  such  a  striking  way  that  it  would 
be  mere  superfluous  iteration  to  dwell  further  on  the  point.1 

Thus  in  the  very  first  proposition  he  has  laid  down 
Rodbertus  comes  into  collision  with  fact.  To  be  entirely 
just,  however,  I  must  here  make  one  concession  which  Knies, 
as  representing  the  Use  theory,  was  unable  to  make.  I  admit 
that,  in  confuting  this  fundamental  principle,  the  whole  of 
Rodbertus's  interest  theory  has  not  been  confuted.  The  pro- 
position is  wrong ;  not,  however,  because  it  mistakes  the  part 
played  by  capital  in  the  production  of  goods,  but  because  it 
mistakes  the  part  played  by  nature. 

I  believe  with  Rodbertus  that,  if  we  consider  the  result  of 
all  the  stages  of  production  as  a  whole,  capital  cannot  maintain 
an  independent  place  among  the  costs  of  production.  It  is 
not  exclusively  "  previous  labour,"  as  Rodbertus  thinks,  but  it 

1  See  Knies,  Dcr  Kredit,  part  second,  p.  64,  etc.  :  "  A  man  who  wishes  to 
'  produce '  coal  must  not  simply  dig ;  he  must  dig  in  a  particular  place  ;  in 
thousands  of  places  he  may  perform  the  same  material  operation  of  digging  with- 
out any  result  whatever.  But  if  the  difficult  and  necessary  work  of  finding  the 
proper  place  is  undertaken  by  a  separate  person,  say  a  geologist ;  if  without  some 
other  and  "intellectual  power"  no  shaft  is  sunk,  and  so  on,  how  can  the  'economic' 
work  be  digging  only  ?  When  the  choice  of  materials,  the  decision  on  the 
proportions  of  the  ingredients,  and  such  like,  are  made  by  another  person  than 
by  him  who  rolls  the  pills,  are  we  to  say  that  the  economical  value  of  this  material 
body,  this  medicine,  is  a  product  of  nothing  but  the  hand  labour  employed  hi 
it?" 


CHAP,  ii  THE  LABOURER'S  CLAIM  341 

is  partly,  and  indeed,  as  a  rule,  it  is  principally  "previous  labour" ; 
for  the  rest,  it  is  valuable  natural  power  stored  up  for  human 
purposes.  Where  natural  power  is  conspicuous — as  in  a  pro- 
duction which,  in  all  its  stages,  only  makes  use  of  free  gifts  of 
nature  and  of  labour,  or  which  makes  use  of  such  products  as  have 
themselves  originated  exclusively  in  free  gifts  of  nature  and  in 
labour — in  such 'cases  we  could,  indeed,  say  with  Rodbertus  that 
the  goods,  economically  considered,  are  products  of  labour  only. 
Since  then  Rodbertus's  fundamental  error  does  not  refer  to  the 
role  of  capital,  but  only  to  that  of  nature,  the  inferences  regard- 
ing the  nature  of  profit  on  capital  which  he  deduces  are  not 
necessarily  false.  It  is  only  if  essential  errors  appear  as  well 
in  the  development  of  his  theory  that  we  may  reject  these 
inferences  as  false.  Now  such  errors  there  undoubtedly  are. 

Not  to  make  an  unfair  use  of  Rodbertus's  first  mistake,  I 
shall,  in  the  whole  of  the  following  examination,  put  all  the 
hypotheses  in  such  a  way  that  the  consequences  of  that 
mistake  may  be  completely  eliminated.  I  shall  assume  that 
all  goods  are  produced  only  by  the  co-operation  of  labour  and 
of  free  natural  powers,  and  by  the  assistance  exclusively  of 
such  objects  of  capital  as  have  themselves  originated  only  by 
the  co-operation  of  labour  and  free  natural  powers,  without  the 
intervention  of  such  natural  gifts  as  possess  exchange  value. 
On  this  limited  hypothesis  it  is  possible  for  us  to  admit 
Rodbertus's  fundamental  proposition  that  goods,  economically 
considered,  cost  labour  alone.  Let  us  now  look  farther. 

The  next  proposition  of  Rodbertus  runs  thus  :  that,  accord- 
ing to  nature  and  the  "  pure  idea  of  justice,"  the  whole  product, 
or  the  whole  value  of  the  product,  ought  to  belong  without 
deduction  to  the  labourer  who  produced  it.  In  this  pro- 
position also  I  fully  concur.  In  my  opinion  no  objection  could 
be  taken  to  its  correctness  and  justice  under  the  presupposition 
we  have  made.  But  I  believe  that  Rodbertus,  and  all  socialists 
with  him,  have  a  false  idea  of  the  actual  results  that  flow  from 
this  true  and  just  proposition,  and  are  led  by  this  mistake 
into  desiring  to  establish  a  condition  which  does  not  really 
correspond  with  the  principle,  but  contradicts  it.  It  is  remark- 
able that,  in  the  many  attempts  at  confutation  that  have  been 
directed  up  till  now  against  the  Exploitation  theory,  this 
decisive  point  has  been  touched  on  only  in  the  most  superficial 


342  RODBERTUS^S  EXPLOITATION  THEORY     BOOK  vi 

way,  and  never  yet  been  placed  in  the  proper  light.  '  It  is  on 
this  account  that  I  ask  my  readers  to  give  some  attention  to 
the  following  argument ;  all  the  more  so  as  it  is  by  no  means 
easy. 

I  shall  first  simply  specify  and  then  examine  the  blunder. 
The  perfectly  just  proposition  that  the  labourer  should  receive 
the  entire  value  of  his  product  may  be  understood  to  mean, 
either  that  the  labourer  should  now  receive  the  entire  present 
value  of  his  product,  or  should  receive  the  entire  future 
value  of  his  product  in  the  future.  But  Rodbertus  and  the 
socialists  expound  it  as  if  it  meant  that  the  labourer  should 
now  receive  the  entire  future  value  of  his  product,  and  they 
speak  as  if  this  were  quite  self-evident,  and  indeed  the  only 
possible  explanation  of  the  proposition. 

Let  us  illustrate  the  matter  by  a  concrete  example.  Sup- 
pose that  the  production  of  a  steam-engine  costs  five  years  of 
labour,  and  that  the  price  which  the  completed  engine  fetches 
is  £5  5  0.  Suppose  further,  putting  aside  meanwhile  the  fact  that 
such  work  would  actually  be  divided  among  several  persons,  that 
a  worker  by  his  own  continuous  labour  during  five  years  makes 
the  engine.  We  ask,  What  is  due  to  him  as  wages  in  the  light 
of  the  principle  that  to  the  labourer  should  belong  his  entire 
product,  or  the  entire  value  of  his  product  ?  There  cannot  be 
a  moment's  doubt  about  the  answer.  The  whole  steam-engine 
belongs  to  him,  or  the  whole  of  its  price,  £550.  But  at  what 
time  is  this  due  to  him  ?  There  cannot  be  the  slightest  doubt 
about  that  either.  Clearly  it  is  due  on  the  expiiy  of  five  years. 
For  of  course  he  cannot  get  the  steam-engine  before  it  exists ; 
he  cannot  take  possession  of  a  value  of  £550  created  by 
himself  before  it  is  created.  He  will,  in  this  case,  have  to 
get  his  compensation  according  to  the  formula,  The  whole 
future  product,  or  its  whole  future  value,  at  a  future  period 
of  time. 

But  it  very  often  happens  that  the  labourer  cannot  or  will 
not  wait  till  his  product  be  fully  completed.  Our  labourer, 
for  instance,  at  the  expiry  of  a  year,  wishes  to  receive  a  part 
payment  corresponding'  to  the  time  he  has  worked.  The  ques- 
tion is,  How  is  this  to  be  measured  in  accordance  with  the 
above  proposition  ?  I  do  not  think  there  can  be  a  moment's 
doubt  about  the  answer.  The  labourer  has  got  his  due  if  he 


CHAP,  ii     PRESENT  WAGE  FOR  FUTURE  PRODUCT          m 

now  receives  the  whole  of  what  he  has  made  up  till  now. 
Thus,  for  example,  if  up  till  now  he  has  produced  a  heap  of 
brass,  iron,  or  steel,  in  the  raw  state,  then  he  will  receive  his 
due  if  he  is  handed  over  just  this  entire  heap  of  brass,  iron,  or 
steel,  or  the  entire  value  which  this  heap  of  materials  has,  and 
of  course  the  value  which  it  has  now.  I  do  not  think  that 
any  socialist  whatever  could  have  anything  to  object  to  in  this 
conclusion. 

Now,  how  great  will  this  value  be  in  proportion  to  the 
value  of  the  completed  steam-engine  ?  This  is  a  point  on 
which  a  superficial  thinker  may  easily  make  a  mistake.  The 
point  is,  the  labourer  has  up  till  now  performed  a  fifth  part 
of  the  technical  work  which  the  production  of  the  whole  engine 
requires.  Consequently,  on  a  superficial  glance,  one  is  tempted 
to  infer  that  his  present  product  will  possess  a  fifth  part 
of  the  value  of  the  whole  product — that  is,  a  value  of  £110. 
On  this  view  the  labourer  ought  to  receive  a  year's  wage  of 
£110. 

This,  however,  is  incorrect.  £110  are  a  fifth  part  of 
the  value  of  a  steam-engine  when  completed.  But  what  the 
labourer  has  produced  up  till  now  is  not  a  fifth  part  of  an 
engine  that  is  already  completed,  but  only  a  fifth  part  of  an 
engine  that  will  not  be  completed  till  four  years  more  have 
elapsed.  And  these  are  two  different  things;  not  different 
in  virtue  of  a  sophistical  quibble,  but  different  in  very  fact. 
The  one -fifth  part  has  a  different  value  from  the  other  so 
surely  as,  in  the  valuation  of  to-day,  an  entire  and  finished 
engine  has  a  different  value  from  an  engine  that  will  only  be 
ready  for  use  in  four  years ;  so  surely  as,  generally  speaking, 
present  goods  have  a  different  value  in  the  present  from 
future  goods. 

That  present  goods,  in  the  estimation  of  the  present  time, 
in  which  our  economical  transactions  take  place,  have  a  higher 
value  than  future  goods  of  the  same  kind  and  quality,  is  one  of 
the  most  widely  known  and  most  important  economic  facts.  In 
the  second  volume  of  this  work  I  shall  have  to  make  thorough 
examination  into  the  causes  to  which  this  fact  owes  its  origin, 
into  the  many  and  various  ways  in  which  it  shows  itself,  and 
into  the  no  less  many  and  various  consequences  to  which  it 
leads  in  economic  life ;  and  that  examination  will  be  neither  so 


344  RQDBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

easy  nor  so  simple  as  the  simplicity  of  the  fundamental  thought 
seems  to  promise.  But  in  the  meantime  I  think  I  may  be 
allowed  to  appeal  to  the  fact  that  present  goods  have  a  higher 
value  than  similar  kinds  of  goods  in  the  future,  as  one  that  is 
already  put  beyond  dispute  by  the  most  ordinary  experience  of 
everyday  life.  If  one  were  to  give  a  thousand  persons  the 
choice  whether  they  would  rather  take  a  gift  of  £100  to-day, 
or  take  it  fifty  years  hence,  surely  all  the  thousand  persons 
would  prefer  to  take  the  £100  now.  Or  if  one  were  to  ask 
a  thousand  persons  who  wished  a  horse,  and  were  disposed 
to  give  £100  for  a  good  one,  how  much  they  would  give  now 
for  a  horse  that  they  would  only  get  possession  of  in  ten  or 
in  fifty  years,  although  as  good  an  animal  were  guaranteed 
at  that  time,  surely  they  would  all  name  an  infinitely  smaller 
sum,  if  they  named  one  at  all ;  and  thereby  they  would  surely 
prove  that  eve  ybody  considers  present  goods  to  be  more 
valuable  than  future  goods  of  the  same  kind. 

If  this  is  so,  that  which  has  been  made  by  our  labourer  in 
the  first  year,  i.e.  the  fifth  part  of  a  steam-engine  which  is  to 
be  completed  four  years  later,  has  not  the  entire  value  of  a 
fifth  part  of  an  already  completed  engine,  but  has  a  smaller 
value. 

How  much  smaller  ?  That  I  cannot  explain  at  present 
without  anticipating  my  argument  in  a  confusing  way. 
Enough  here  to  remark  that  it  stands  in  a  certain  connection 
with  the  rate  of  interest  usual  in  the  country x — a  rate  which 
is  a  matter  of  experience — and  with  the  remoteness  of  the 
period  at  which  the  whole  product  will  be  completed.  If  we 
assume  the  usual  rate  of  interest  to  be  5  per  cent,  then  the 
product  of  the  first  year's  labour  will,  at  the  close  of  the  year, 
be  worth  about  £100.2  Therefore,  according  to  the  proposition 
that  the  labourer  ought  to  receive  his  whole  product,  or  its 
whole  value,  the  wages  due  him  for  the  first  year's  labour  will 
amount  to  the  sum  of  £100. 

If,  notwithstanding  the  above  deductions,  any  one  should 

1  Of  course  I  do  not  mean  to  put  forward  the  rate  of  interest  as  the  cause  of 
the  smaller  valuation  of  future  goods.  I  know  quite  well  that  interest  and  rate 
of  interest  can  only  be  a  result  of  this  primary  phenomenon.  I  am  not  here  ex- 
plaining but  only  depicting  facts. 

•  The  appropriateness  of  these  figures,  which  seem  strange  at  the  first  glance, 
will  be  seen  immediately. 


CHAP,  ii     PRESENT  WAGE  FOR  FUTURE  PRODUCT          345 

have  the  impression  that  this  sum  is  too  small,  let  me  offer  the 
following  for  his  consideration.  No  one  will  doubt  that  the 
labourer  gets  his  full  rights  if  at  the  end  of  five  years  he 
receives  the  entire  steam-engine,  or  the  whole  value  of  £550. 
Let  us  calculate  then  for  comparison's  sake  what  would  be  the 
value  of  the  part- wage  anticipated  as  above  at  the  end  of  the  fifth 
year  ?  The  £100  which  the  labourer  has  received  at  the  end 
of  the  first  year  can  be  put  out  at  interest  for  the  next  four 
years — that  is,  till  the  end  of  the  fifth  year ;  at  the  rate  of 
5  per  cent  (without  calculating  compound  interest),  the  £100 
may  therefore  increase  by  £20 — this  course  being  open  even  to 
the  wage-paid  labourer.  Thus,  it  is  clear,  the  £100  paid  at 
the  end  of  the  first  year  are  equivalent  to  £120  at  the  end  of 
the  fifth.  If  the  labourer  then,  for  the  fifth  part  of  the  tech- 
nical labour,  receives  £100  at  the  end  of  a  year,  clearly  he  is 
paid  according  to  a  scale  which  puts  him  in  as  favourable  a 
position  as  if  he  had  received  £550  for  the  whole  labour  at 
the  expiry  of  five  years. 

But  what  do  Eodbertus  and  the  socialists  suppose  to  be 
the  application  of  the  principle  that  the  labourer  should 
receive  the  whole  value  of  his  product  ?  They  would  have 
the  whole  value  that  the  completed  engine  will  have  at  the 
end  of  the  process  of  production  applied  to  the  payment  of 
wages,  but  they  would  have  this  payment  not  made  at  the 
conclusion  of  the  whole  production,  but  spread  proportionally 
over  the  whole  course  of  the  labour.  We  should  consider 
well  what  that  'means.  It  means  'that  the  labourer  in  our 
example,  through  this  averaging  of  the  part  payments,  is  to 
receive  in  two  and  a  half  years  the  whole  of  the  £550  which 
will  be  the  value  of  the  completed  steam-engine  at  the  end  of 
five  years. 

I  must  confess  that  I  consider  it  absolutely  impossible  to 
base  this  claim  on  these  premises.  How  should  it  be  according 
to  nature,  and  founded  on  the  pure  idea  of  justice,  that  any 
one  should  receive  at  the  end  of  two  and  a  half  years  a  whole 
that  he  will  only  have  produced  in  five  years  ?  It  is  so  little 
"  according  to  nature,"  that,  on  the  contrary,  in  the  nature  of 
things  it  could  not  be  done.  It  could  not  be  done  even 
if  the  labourer  were  released  from  all  the  shackles  of  the  much- 
abused  wage-contract,  and  put  in  the  most  favourable  position 


346  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

that  can  be  conceived — that  of  undertaker  in  his  own  right. 
As  labourer-undertaker  he  will  certainly  receive  the  whole  of 
the  £550,  but  not  before  they  are  produced;  that  is  to  say, 
not  till  the  end  of  the  five  years.  And  how  can  that  which 
the  very  nature  of  things  denies  to  the  undertaker  himself  be 
accomplished,  in  the  name  of  the  pure  idea  of  justice,  through 
the  contract  of  wages  ? 

To  give  the  matter  its  proper  expression,  what  the 
socialists  would  have  is,  that  the  labourers,  by  means  of  the 
wage -contract,  should  get  more,  than  they  have  made;  more 
than  they  could  get  if  they  were  undertakers  on  their  own 
account ;  and  more  than  they  produce  for  the  undertaker  with 
whom  they  conclude  the  wage -contract.  What  they  have 
created,  and  what  they  have  just  claim  on,  is  the  £550  at  the 
end  of  the  five  years.  But  the  £550  at  the  end  of  two 
and  a  half  years  which  the  socialists  claim  for  them  is  more ; 
if  the  interest  stand  at  5  per  cent  it  is  about  as  much  as 
£620  at  the  end  of  five  years.  And  this  difference  of  value 
is  not,  as  might  be  thought,  a  result  of  social  institutions 
which  have  created  interest  and  fixed  it  at  5  per  cent — institu- 
tions that  might  be  combated.  It  is  a  direct  result  of  the  fact 
that  the  life  of  all  of  us  plays  itself  out  in  time ;  that  to-day 
with  its  wants  and  cares  comes  before  to-morrow ;  and  that 
none  of  us  is  sure  of  the  day  after  to-morrow.  It  is 
not  only  the  capitalist  greedy  of  profit,  it  is  every  labourer 
as  well,  nay,  every  human  being  that  makes  this  distinction 
of  value  between  present  and  future.  How  the  labourer  would 
cry  out  that  he  was  defrauded  if,  instead  of  the  20s.  which  are 
due  him  for  his  week's  wage  to-day,  one  were  to  offer  him  20s. 
a  year  hence  !  And  that  which  is  not  a  matter  of  indifference  to 
the  labourer  is  to  be  a  matter  of  indifference  to  the  undertaker  ! 
He  is  to  give  £550  at  the  end  of  two  and  a  half  years  for  the 
£550  which  he  is  to  receive,  in  the  form  of  the  completed 
product,  only  at  the  end  of  five  years.  That  is  neither  just 
nor  natural.  What  is  just  and  natural  is — I  willingly  ac- 
knowledge it  again — that  the  labourer  should  receive  the  whole 
value,  the  £550,  at  the  end  of  five  years.  If  he  cannot  or  will 
not  wait  five  years,  yet  he  should,  all  the  same,  have  the  value 
of  his  product ;  but  of  course  the  present  value  of  his  present 
product.  This  value,  however,  will  require  to  be  less  than  the 


CHAP,  ii    PRESENT  WAGE  FOR  FUTURE  PRODUCT  347 

corresponding  proportion  of  the  future  value  of  the  product  of 
the  technical  labour,  because  in  the  economic  world  the  law 
holds  that  the  present  value  of  future  goods  is  less  than  that 
of  present  goods, — a  law  that  owes  its  existence  to  no  social  or 
political  institution,  but  directly  to  the  nature  of  men  and  the 
nature  of  things. 

If  prolixity  may  ever  be  excused,  it  is  in  this  instance, 
where  we  have  to  confute  a  doctrine  with  issues  so  extremely 
serious  as  the  socialist  Exploitation  theory.  Therefore  at  the 
risk  of  being  wearisome  to  many  of  my  readers  I  shall  put  a 
second  concrete  case,  which,  I  hope,  will  afford  me  an  oppor- 
tunity of  pointing  out  still  more  convincingly  the  blunders  of 
the  socialists. 

In  our  first  illustration  we  took  no  account  of  the  division 
of  labour.  Let  us  now  vary  the  hypothesis  in  such  a  way 
that  at  this  point  it  will  come  nearer  to  the  reality  of  economic 
life. 

Suppose  then  that,  in  the  making  of  the  engine,  five  dif- 
ferent workers  take  separate  parts,  each  contributing  one 
year's  labour.  One  labourer  obtains,  say,  by  mining,  the  need- 
ful iron  ore ;  the  second  smelts  it ;  the  third  transforms  the 
iron  into  steel ;  the  fourth  takes  the  steel  and  manufactures 
the  separate  constituent  parts ;  and  finally  the  fifth  gives  the 
parts  their  necessary  connection,  and  in  general  puts  the 
finishing  touches  to  the  work.  As  each  succeeding  labourer 
in  this  case,  by  the  very  nature  of  things,  can  only  begin  his 
work  when  his  predecessors  have  finished  jbheirs,  the  five  years' 
work  of  our  labourers  cannot  be  performed  simultaneously  but 
only  successively.  Thus  the  making  of  the  engine  will  take 
five  years  just  as  in  the  first  illustration.  The  value  of  the 
completed  engine  remains,  as  before,  £550.  According  to  the 
proposition  that  the  labourer  is  to  receive  the  entire  value  of 
his  product,  how  much  will  each  of  the  five  partners  be  able 
to  claim  for  what  he  has  done  ? 

Let  us  try  to  answer  this  question  first  on  the  assumption 
that  the  claims  of  wages  are  to  be  adjusted,  without  the  inter- 
vention of  an  outside  undertaker,  solely  among  the  labourers 
themselves ;  the  product  obtained  is  to  be  divided  simply 
among  the  five  labourers.  In  this  case  two  things  are 
certain. 


348  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

First,  a  division  can  only  take  place  after  five  years,  be- 
cause before  that  date  there  is  nothing  suitable  for  division. 
For  if  one  were  now  to  give  away  in  payment  of  wages  to 
individuals,  say  the  brass  and  iron  which  had  been  secured 
during  the  first  two  years,  the  raw  material  for  the  next 
stage  of  the  work  would  be  wanting.  It  is  abundantly  clear 
that  the  product  acquired  in  the  first  years  is  necessarily  with- 
drawn from  any  earlier  division,  and  must  remain  bound  up 
in  the  production  till  the  close. 

Second,  it  is  certain  that  a  total  value  of  £550  will  have 
to  be  divided  among  the  five  labourers. 

In  what  proportion  will  it  be  divided  ? 

Certainly  not,  as  one  might  easily  think  at  the  first  hasty 
glance,  into  equal  parts.  For  this  would  be  distinctly  to 
favour  those  labourers  whose  labour  comes  at  a  later  stage  of 
the  total  production,  in  comparison  with  their  colleagues  who 
were  employed  in  the  earlier  stages.  The  labourer  who  com- 
pleted the  engine  would  receive  for  his  year's  labour  £110 
immediately  on  the  conclusion  of  his  work ;  the  labourer  who 
turned  out  the  separate  constituent  portions  of  the  engine  would 
receive  the  same  sum,  but  must  wait  on  his  payment  for  a 
whole  year  after  the  completion  of  his  year's  labour;  while 
that  labourer  who  procured  the  ore  would  not  receive  the  same 
amount  of  wages  till  four  years  after  he  had  done  his  share 
of  the  work.  As  such  a  delay  could  not  possibly  be  indifferent 
to  the  partners,  every  one  would  wish  to  undertake  the  final 
labour  (which  has  not  to  suffer  any  postponement  of  wage), 
and  nobody  would  be  willing  to  take  the  preparatory  stages. 
To  find  labourers  to  take  the  preparatory  stages  then,  the 
labourers  of  the  final  stages  would  be  compelled  to  grant  to 
their  colleagues  who  prepared  the  work  a  larger  share  in  the 
final  value  of  the  product,  as  compensation  for  the  postponement. 
The  amount  of  this  larger  share  would  be  regulated,  partly  by 
the  period  of  the  postponement,  partly  by  the  amount  of  differ- 
ence that  subsists  between  the  valuation  of  present  and  the 
valuation  of  future  goods, — a  difference  which  would  depend 
on  the  economic  circumstances  of  our  little  society,  and  on  its 
level  of  culture.  If  this  difference,  for  instance,  amounted  to 
5  per  cent  per  annum,  the  shares  of  the  five  labourers  would 
graduate  in  the  following  manner : — 


CHAP,  ii     PRESENT  WAGE  FOR  FUTURE  PRODUCT  349 

The  first  labourer  employed,  who  has  to  wait  for  his  pay- 
ment four  years   after  the  conclusion   of   his  year's 
work,  receives  at  the  end  of  the  fifth  year                   .  £120 
The  second,  who  has  to  wait  three  years  .              .             .  115 
The  third,  who  waits  two  years    .              .              .              .  110 
The  fourth,  who  waits  one  year   .              .              .              .105 
The  last,  who  receives  his  wages  immediately  on  the  con- 
clusion of  his  labour  100 


Total  £550 


That  all  the  labourers  should  receive  the  same  amount 
of  £110  is  only  conceivable  on  the  assumption  that  the 
difference  of  time  is  of  no  importance  whatever  to  them,  and  that 
they  find  themselves  quite  as  well  paid  with  the  £110,  which 
they  receive  three  or  four  years  after,  as  if  they  had  received 
the  £  1 1 0  immediately  on  the  conclusion  of  their  labour.  But 
I  need  scarcely  emphasise  that  such  an  assumption  never 
corresponds  with  fact,  and  never  can.  That  they  should  each 
receive  £  1 1 0  immediately  on  tlie  accomplishment  of  their  labour 
is,  if  a  third  party  do  not  step  in,  altogether  impossible. 

It  is  well  worth  the  trouble,  in  passing,  to  draw  particular 
attention  to  one  circumstance.  I  believe  no  one  will  find 
the  above  scheme  of  distribution  unjust.  Above  all,  as  the 
labourers  divide  their  own  product  among  themselves  alone, 
there  cannot  be  any  question  of  injustice  on  the  part  of  a 
capitalist -undertaker.  And  yet  that  labourer  who  has  per- 
formed the  second  last  fifth  part  of  the  work  does  not  receive 
the  full  fifth  part  of  the  final  value  of  the  product,  but  only 
£105  ;  and  the  last  labourer  of  all  receives  only  £100. 

Now  assume,  as  is  generally  the  case  in  actual  fact,  that 
the  labourers  cannot  or  will  not  wait  for  their  wage  till  the 
very  end  of  the  production  of  the  engine,  and  that  they  enter 
into  a  negotiation  with  an  undertaker,  with  the  view  of  obtain- 
ing a  wage  from  him  immediately  on  the  performance  of  their 
labour,  in  return  for  which  he  is  to  become  the  owner  of  the  final 
product.  Assume,  further,  that  this  undertaker  is  a  perfectly 
just  and  disinterested  man,  who  is  far  from  making  use  of  the 
position  into  which  the  labourers  are  possibly  forced,  to  usuriously 
depress  their  claim  of  wages;  and  let  us  ask,  On  what  conditions 
will  the  wage-contract  be  concluded  under  such  circumstances  ? 


350  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

The  question  is  tolerably  easy  to  answer.  Clearly  the 
labourers  will  be  perfectly  justly  treated  if  the  undertaker  offers 
them  as  wage  the  sums  which  they  would  have  received  as 
parts  of  the  division,  if  they  had  been  producing  on  their  own 
account.  This  principle  gives  us  first  a  firm  standing  ground 
for  one  labourer,  namely,  for  the  last.  This  labourer  would 
in  the  former  case  have  received  £100  immediately  after 
the  accomplishment  of  his  labour.  This  £100,  therefore, 
to  be  perfectly  just,  the  undertaker  must  now  offer  him. 
For  the  remaining  labourers  the  above  principle  gives  no 
immediate  indication.  The  wages  in  this  case  are  not  paid  at 
the  same  time  as  they  would  have  been  in  the  case  of  the 
division,  and  the  sums  paid  in  the  former  case  cannot  afford 
a  direct  standard.  But  we  have  another  standing  ground.  As 
all  five  labourers  have  performed  an  equal  amount  towards 
the  accomplishment  of  the  work,  in  justice  an  equal  wage  is 
due  to  them ;  and  where  every  labourer  is  to  be  paid  immediately 
on  the  performance  of  his  labour,  this  wage  will  be  expressed 
by  an  equal  amount.  Therefore,  in  justice,  all  five  labourers, 
at  the  end  of  their  year's  labour,  will  receive  each  £100. 

If  this  seems  too  little,  let  me  refer  to  the  following  simple 
calculation,  which  will  demonstrate  that  the  labourers  receive 
quite  the  same  value  in  this  case  as  they  would  have  received 
had  they  divided  the  whole  product  among  themselves  alone, 
in  which  case,  as  we  have  seen,  the  justice  of  the  division 
would  have  been  beyond  question. 

Labourer  No.  5  receives,  in  the  case  of  division,  £100 
immediately  after  the  year's  labour;  in  the  case  of  the  wage- 
contract  he  receives  the  same  sum  at  the  same  time. 

Labourer  No.  4  receives,  in  the  case  of  division,  £105  a 
year  after  the  termination  of  the  year's  labour ;  in  the  case 
of  the  wage-contract  £100  immediately  after  the  labour.  If, 
in  the  latter  case,  he  lets  this  sum  lie  at  interest  for  a  year 
he  will  be  in  exactly  the  same  position  as  he  would  have  been 
in  the  case  of  division;  he  will  be  in  possession  of  £105  one 
year  after  the  conclusion  of  his  labour. 

Worker  No.  3  receives,  in  the  case  of  division,  £110  two 
years  after  the  termination  of  his  labour;  in  the  wage-contract, 
£  1  0  0  at  once,  which  sum,  placed  at  interest  for  two  years,  will 
increase  to  £110. 


CHAP,  it     PRESENT  WAGE  FOR  FUTURE  PRODUCT          351 

And  in  the  same  way,  finally,  the  £100  which  the  first 
and  second  labourers  receive  are,  with  the  addition  of  the 
respective 'interests,  quite  equivalent  to  the  £120  and  the 
£115  which,  in  the  case  of  division,  these  two  labourers  would 
have  received  respectively  four  and  three  years  after  the 
conclusion  of  their  labour. 

But  if  each  single  wage  under  the  contract  is  equal  to  the 
corresponding  quota  under  the  division,  of  course  the  sum  of 
the  wages  must  also  be  equal  to  the  sum  of  the  division 
quotas;  the  sum  of  £500  which  the  undertaker  pays  to  the 
labourers  immediately  on  the  completion  of  their  work  is 
entirely  equal  in  value  to  the  £550  which,  in  the  other  case, 
would  have  been  divided  among  the  labourers  at  the  end  of 
the  fifth  year. 

A  higher  wage  payment,  e.g.  to  pay  the  year's  labour  at 
£110  each  labourer,,  is  only  conceivable  in  one  of  two 
cases ;  either  if  that  which  is  not  indifferent  to  the  labourers, 
namely,  the  difference  of  time,  were  completely  indifferent  to 
the  undertaker ;  or  if  the  undertaker  were  willing  to  make 
a  gift  to  the  labourers  of  the  difference  in  value  between  a 
present  £110  and  a  future  £110.  Neither  the  one  nor  the 
other  is  to  be  expected  of  private  undertakers,  at  least  as  a 
rule ;  nor  do  they  deserve  the  slightest  reproach  on  that 
account,  and,  least  of  all,  the  reproach  of  injustice,  exploitation, 
or  robbery. 

There  is  only  one  personage  from  whom  the  labourers  could 
expect  such  a  treatment — the  State.  For  on  the  one  hand,  the 
state,  as  a  permanently  existing  entity,  is  not  bound  to  pay  as 
much  regard  to  the  difference  of  time  in  the  outgoing  and 
replacing  of  goods  as  the  short-lived  individual.  And  on  the 
other  hand,  the  state,  whose  end  is  the  welfare  of  the  whole, 
can,  if  it  is  a  question  of  the  welfare  of  a  great  number  of  the 
members,  quit  the  strict  standpoint  of  service  and  counter- 
service,  and,  instead  of  bargaining,  may  give.  So  then  it 
certainly  is  conceivable  that  the  state — but  certainly  only  the 
state — assuming  the  function  of  a  gigantic  undertaker  of  pro- 
duction, might  offer  to  the  labourers  as  wage  the  full  future 
value  of  their  future  product  at  once,  that  is,  immediately 
after  the  accomplishment  of  their  labour. 

Whether  the  state  ought  to  do  this, — by  which,  in  the  view 


352  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

of  Socialism,  the  social  question  would  be  practically  solved, — is 
a  question  of  propriety  which  I  have  no  intention  of  entering 
on  at  this  moment.  But  this  must  be  repeated  with  all 
emphasis :  if  the  socialist  state  pays  down  at  once,  as  wages 
to  the  labourer,  the  whole  future  value  of  his  product,  it  is 
not  a  fulfilment  of  the  fundamental  law  that  the  labourer 
should  receive  the  value  of  his  product  as  wages,  but  a  departure 
from  it  on  social  and  political  grounds.  And  such  a  proceed- 
ing would  not  be  the  bringing  back  of  a  state  of  things  that 
was  in  itself  natural,  or  in  accordance  with  the  pure  idea  of 
justice, — a  state  of  things  only  temporarily  disturbed  by  the 
exploiting  greed  of  the  capitalists.  It  would  be  an  artificial* 
interference,  with  the  intention  of  making  something  possible 
which,  in  the  natural  course  of  things,  was  not  possible,  and 
of  making  it  possible  by  means  of  a  disguised  continuous 
gift  from  the  magnanimous  commonwealth  state  to  its  poorer 
members. 

And  now  a  brief  practical  application.  It  is  easy  to 
recognise  that  the  method  of  payment  which  I  have  just  now 
described  in  our  illustration  is  that  which  actually  does  obtain 
in  our  economic  world.  In  it  the  full  final  value  of  the 
product  of  labour  is  not  divided  as  wages,  but  only  a  smaller 
sum ;  this  smaller  sum,  however,  being  divided  at  an  earlier 
period  of  time.  Now,  so  long  as  the  total  sum  of  the  wages 
spread  over  the  course  of  the  production  is  not  less  than  the 
final  value  of  the  finished  product  by  more  than  is  necessary 
to  make  up  the  difference  in  the  valuation  of  present  as 
compared  with  future  goods — in  other  words,  so  long  as  the 
sum  of  the  wages  does  not  differ  from  the  final  value  of  the 
product  by  more  than  the  amount  of  the  interest  customary 
in  the  country — no  curtailment  is  made  on  the  claims  that 
the  workers  have  on  the  whole  value  of  their  product.  They 
receive  their  whole  product  according  to  its  valuation  at  the 
point  of  time  in  which  tJiey  receive  their  wages.  Only  in  so  far 
as  the  total  wages  diifer  from  the  final  value  of  the  product  by 
more  than  the  amount  of  interest  customary  in  the  country, 
can  there  be,  under  the  circumstances,  any  real  exploitation  of 
the  labourers.1 

1  More  exact  criticism  on  this  head  I  postpone  till  my  second  volume.     To 
protect  myself  against  misunderstandings,  however,  and  particularly  against  the 


CHAP,  ii       VALUE  NOT  REGULATED  BY  LABOUR  353 

To  return  to  Rodbertus.  The  second,  and  most  distinct 
blunder  of  which  I  have  accused  him  in  the  foregoing,  is  that 
he  interprets  the  proposition  I  have  conceded  (the  labourer  is  to 
receive  the  whole  value  of  his  product)  in  an  unwarrantable 
and  illogical  manner,  as  if  it  meant  that  the  labourer  is  to 
receive  now  the  whole  value  which  his  completed  product  will 
have  at  some  future  time. 

If  we  inquire  how  it  was  that  Rodbertus  fell  into  this 
mistake,  we  shall  find  that  the  cause  of  it  was  another  mistake, 
this  being  the  third  important  error  in  the  Exploitation  theoiy. 
It  is  that  he  starts  with  the  assumption  that  the  value  of 
goods  is  regulated  solely  by  the  amount  of  labour  which 
their  production  has  cost.  If  this  were  correct,  then  the 
first  product,  in  which  is  embodied  the  labour  of  one  year, 
must  now  possess  a  full  fifth  part  of  the  value  which  the  com- 
pleted product,  in  which  is  embodied  five  years  of  labour,  will 
possess.  In  this  case  the  claim  of  the  labourer  to  receive  as 
wages  a  full  fifth  part  of  that  completed  value  would  be 
justified.  But  this  assumption,  as  Rodbertus  puts  it,  is  un- 
doubtedly false.  To  prove  this  I  need  not  question  in  the 
least  the  theoretical  validity  of  Ricardo's  celebrated  theory, 
that  labour  is  the  source  and  measure  of  all  value.  I  need 
only  point  out  the  existence  of  a  distinct  exception  to  this 
law,  noticed  by  Ricardo  himself  and  discussed  by  him  in 
detail  in  a  separate  chapter,  but,  strangely  enough,  passed 

imputation  of  considering  undertaking  profit  to  be  a  "  profit  of  plunder  "  when  it 
exceeds  the  usual  rate  of  interest,  I  may  add  a  short  note. 

In  the  total  difference,  between  value  of  product  and  wages  expended,  which 
falls  to  the  undertaker,  there  may  possibly  be  four  constituents,  essentially  different 
from  each  other. 

1.  A  premium  for  risk,  to  provide  against  the  danger  of  the  production  turn- 
ing out  badly.     Rightly  measured,  this  will,  on  an  average  of  years,  be  spent  in 
covering  actual  losses,  and  this  of  course  involves  no  curtailment  of  the  labourer. 

2.  A   payment  for  the  undertaker's   own  labour.     This  of  course  is  equally 
unobjectionable,  and  in  certain  circumstances,  as  in  the  using  of  a  new  invention 
of  the  undertaker,  may  be  very  highly  assessed  without  any  injustice  being  done 
to  the  labourer. 

3.  The  compensation  referred  to  in  the  text,  viz.  the  compensation  for  difference 
of  time  between  the  wage  payment  and  the  realising  of  the  final  product,  this 
being  afforded  by  the  customary  interest. 

4.  The  undertaker  may  possibly  get  an  additional  profit  by  taking  advantage 
of  the  necessitous  condition  of  the  labourers  to  usuriously  force  down  their  wages. 

Of  these  four  constituents  only  the  latter  involves' any  violation  of  the 
principle  that  the  labourer  should  receive  the  whole  value  of  his  product. 

2  A 


354  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

over  without  notice  by  Rodbertus.  This  exception  is  found 
in  the  fact  that,  of  two  goods  which  have  cost  an  equal 
amount  of  labour  to  produce,  that  one  obtains  a  higher  exchange 
value  the  completion  of  which  demands  the  greater  advances 
of  previous  labour,  or  the  longer  period  of  time.  Ricardo 
notices  this  fact  in  a  characteristic  manner.  He  declares  (S  4 

XO 

of  the  first  chapter  of  his  Principles)  that  "  the  principle  that 
the  quantity  of  labour  employed  in  the  production  of  goods 
regulates  their  relative  value,  suffers  a  considerable  modification 
by  the  employment  of  machinery  and  other  fixed  and  durable 
capital,"  and  further,  in  §  5,  "on  account  of  the  unequal 
durability  of  capital,  and  of  the  unequal  rapidity  with  which,  it 
is  returned  to  its  owner."  That  is  to  say,  in  a  production 
where  much  fixed  capital  is  used,  or  fixed  capital  of  a  greater 
durability,  or  where  the  time  of  turn -over  on  which  the 
floating  capital  is  paid  back  to  the  undertaker  is  longer,  the 
goods  made  have  a  higher  exchange  value  than  goods'  which 
have  cost  an  equal  amount  of  labour,  but  into  the  production 
of  which  the  elements  just  named  do  not  enter,  or  enter  in 
a  lesser  degree, — indeed  an  exchange  value  which  is  higher  by 
the  amount  of  the  profit  which  the  undertaker  expects  to 
obtain. 

That  this  exception  to  the  law  of  labour- value  noticed  by 
Ricardo  really  exists  cannot  be  questioned,  even  by  the  most 
zealous  advocates  of  that  law.  Just  as  little  can  it  be  questioned 
that,  under  certain  circumstances,  the  consideration  of  the  post- 
ponement may  have  even  a  greater  influence  on  the  value  of 
goods  than  the  consideration  of  the  amount  of  labour-costs.  I 
may  remind  the  reader,  for  example,  of  the  value  of  an  old 
wine  that  has  been  stored  up  for  scores  of  years,  or  of  a  hundred 
years  old  tree  in  the  forest. 

But  on  that  exception  hangs  a  tale.  It  does  not 
require  any  great  penetration  to  see  that  the  principal 
feature  of  natural  interest  on  capital  is  really  involved  in 
it.  For  when,  on  the  division  of  the  value,  those  goods 
that  require  for  their  production  an  advance  of  foregoing 
labour  show  a  surplus  of  exchange  value,  it  is  just  this 
surplus  that  remains  in  the  hands  of  the  capitalist-under- 
taker as  profit.  If  this  difference  of  value  did  not  exist 
natural  interest  on  capital  would  not  exist  either.  This 


CHAP,  it  THE  GREAT  EXCEPTION  355 

difference  of  value  makes  it  possible,  contains  it,  is  identical 
with  it. 

Nothing  is  more  easily  demonstrated  than  this,  if  any 
proof  is  wanted  of  so  obvious  a  fact  Supposing  each  of  three 
goods  requires  for  its  making  a  year's  labour,  but  a  different 
length  of  time  over  which  the  labour  is  advanced.  The  first 
good  requires  only  one  year's  advance  of  the  year's  labour;  the 
second  a  ten  years'  advance ;  the  third  a  twenty  years'  advance. 
Under  these  circumstances  the  exchange  value  of  the  first  good 
will,  and  must  be,  sufficient  to  cover  the  wages  of  a  year's  labour, 
and,  beyond  that,  one  year's  interest  on  the  advanced  labour. 
It  is  perfectly  clear  that  the  same  exchange  value  cannot  be 
sufficient  to  cover  the  wages  of  a  year's  labour,  and  a  ten  or 
twenty  years'  interest  on  the  ten  or  twenty  years'  advance  of 
labour  as  well.  That  interest  can  only  be  covered  if  and 
because  the  exchange  value  of  the  second  and  third  good  is 
correspondingly  higher  than  that  of  the  first  good,  although  all 
three  have  cost  an  equal  amount  of  labour.  The  difference 
of  exchange  value  is  clearly  the  source  from  which  the  ten 
and  twenty  years'  interest  flows,  and  the  only  source  from 
which  it  can  flow. 

Thus  this  exception  to  the  law  of  labour-value  is  nothing 
less  than  the  chief  feature  in  natural  interest  on  capital  Any 
one  who  would  explain  natural  interest  must,  in  the  first 
place,  explain  this ;  without  an.  explanation  of  the  exception 
here  can  be  no  explanation  of  the  problem  of  interest.  Now 
if,  notwithstanding,  in  treatises  on  interest  this  exception  is 
ignored,  not  to  say  denied,  it  is  as  gross  a  blunder  as  could 
well  be  conceived.  "When  Eodbertus  ignores  the  exception,  it 
means  nothing  else  than  ignoring  the  chief  part  of  what  he 
ought  to  have  explained. 

Nor  can  one  excuse  Rodbertus's  blunder  by  saying  that  he 
did  not  intend  to  lay  down  a  rule  which  should  hold  in 
actual  life,  but  only  a  hypothetical  assumption  by  which  he 
might  carry  through  his  abstract  inquiries  more  easily  and 
more  correctly.  It  is  true  that  Eodbertus,  in  some  passages 
of  his  writings,  does  clothe  the  proposition,  that  the  value 
of  all  goods  is  determined  by  their  labour  costs,  in  the  form  of 
a  simple  hypothesis.1  But,  firstly,  there  are  many  passages 

1  E.g.  Soziale  Frage,  pp.  44,  107. 


356  RODBERTUS' S  EXPLOITATION  THEORY     BOOK  vi 

where  Rodbertus  expresses  his  conviction  that  his  principle  of 
value  also  holds  in  actual  economic  life.1  And,  secondly,  a 
man  may  not  assume  anything  that  he  likes,  even  as  a  simple 
hypothesis.  That  is  to  say,  even  in  a  purely  hypothetical 
assumption,  one  may  omit  only  such  circumstances  of  actual 
fact  as  are  irrelevant  to  the  question  under  examination. 
But  what  is  to  be  said  for  a  theoretical  inquiry  into  interest 
which  at  the  critical  point  leaves  out  the  existence  of  the 
most  important  feature ;  which  gets  rid  of  the  principal  part 
of  what  it  had  to  explain  with  a  " let  us  assume"  ? 

On  one  point  it  may  be  admitted  that  Rodbertus  is  right : 
if  we  wish  to  discover  a  principle  like  that  of  land-rent  or 
interest,  we  must  "  not  let  value  dance  up  and  down  " ; 2  we 
must  assume  the  validity  of  a  fixed  law  of  value.  But  is  it 
not  also  a  fixed  law  of  value  that  goods  which  require  a 
longer  time  between  the  expenditure  of  labour  and  their 
completion  have,  ceteris  paribus,  a  higher  value  ?  And  is  not 
this  law  of  value  of  fundamental  importance  in  relation  to  the 
phenomenon  of  interest  ?  And  yet  it  is  to  be  left  out  of 
account  like  an  irregular  accident  of  the  circumstances  of  the 
market ! 3 

1  Soziale  Frage,  pp.  113,  147.  Erkldrung  und  Abhilfe,  i.  p.  123.  In  the 
latter  Rodbertus  says  :  "  If  the  value  of  agricultural  and  manufacturing  product 
is  regulated  by  the  labour  incorporated  in  it,  as  always  happens  on  the  whole, 
even  where  commerce  is  free,"  etc.  *  Ibid.  p.  iii.  n. 

3  The  above  was  written  before  the  publication  of  Rodbertus's  posthumous 
work,  Capital,  in  1884.  In  it  Rodbertus  takes  an  exceedingly  strange  position 
towards  our  question, — a  position  which  calls  rather  for  a  strengthening  than  a 
modification  of  the  above  criticism.  He  strongly  emphasises  the  point  that  the 
law  of  labour  value  is  not  an  exact  law,  but  simply  a  law  that  determines  the 
point  towards  which  value  will  gravitate  (p.  6,  etc.)  He  even  owns  in  as  many 
words  that,  on  account  of  the  undertaker's  claim  on  profit,  a  constant  divergence 
takes  place  between  the  actual  value  of  the  goods  and  their  value  as  measured 
by  labour  (p.  11,  etc.)  -Only  he  makes  the  extent  of  this  concession  much  too 
trifling  when  he  assumes  that  the  deviation  obtains  only  in  the  relations  of  the 
different  stages  of  production  of  one  and  the  same  good  ;  and  that  the  deviation 
does  not  obtain  in  the  case  of  all  the  stages  of  production  as  a  whole.  That  is,  if 
the  making  of  a  good  is  divided  into  several  sections  of  production,  of  which  each 
section  develops  into  a  separate  trade,  according  to  Rodbertus  the  value  of  the 
separate  product  which  is  made  in  each  individual  section  cannot  remain  in 
exact  correspondence  with  the  quantity  of  labour  expended  on  it ;  because  the 
undertakers  of  the  later  stages  of  production  have  to  make  a  greater  outlay  -for 
material,  and  therefore  a  greater  expenditure  of  capital,  and  on  that  account  have 
to  calculate  on  a  higher  profit,  which  higher  profit  can  only  be  provided  by  a 
relatively  higher  value  of  the  product  in  question. 


CHAP,  ii         OMISSIONS  AND  CONTRADICTIONS  357 

This  singular  omission  is  not  without  result.  On  the 
first  result  I  have  already  touched.  In  overlooking  the  in- 
fluence of  time  upon  the  value  of  products,  Kodbertus  could 
not  avoid  falling  into  the  mistake  of  confounding  the  claim  of 
the  labourer  to  the  whole  present  value  of  his  product  with 
the  claim  to  its  future  value.  Some  other  consequences  we 
shall  encounter  shortly. 

A  fourth  criticism  which  I  have  to  make  on  Eodbertus  is, 
that  his  doctrine  contradicts  itself  in  important  points. 

His  entire  theory  of  land-rent  is  based  upon  the  repeatedly 
and  emphatically  expressed  proposition  that  the  absolute 

However  correct  this  is,  it  is  clear  that  it  does  not  go  far  enough.  The 
divergence  of  the  actual  value  of  goods  from  the  quantity  of  labour  expended 
does  not  take  place  only  between  the  fore-products  of  one  good  in  relation  to  each 
other,  in  such  a  way  that,  in  the  course  of  the  various  stages  of  production, 
it  cancels  itself  again  through  reciprocal  compensation,  and  so  the  final 
result  of  all  the  stages  of  production,  the  goods  ready  for  consumption,  obeys 
the  law  of  labour-value.  On  the  contrary,  the  amount  and  the  duration  of  the 
advance  of  capital  definitively  forces  the  value  of  all  goods  away  from  exact 
correspondence  with  their  labour  costs.  To  illustrate.  Say  that  the  production 
of  a  commodity  requiring  ninety  days  for  its  manufacture  is  divided  into  three 
stages  of  thirty  days'  labour  in  each.  Rodbertus  would  say  that  the  product  of 
the  first  thirty  days'  labour  might  only  attain  the  value  of  twenty-five  days' 
labour,  while  the  second  thirty  attained  the  value  of  thirty  days',  and  the  third 
thirty  of  thirty-five  days'  labour.  But  on  the  whole  the  final  value  of  the 
product  would  be  equal  to  ninety  days'  labour.  But  it  U  •  u*ttcr  of  common 
experience  that,  in  normal  successive  production,  the  value  of  su<>h  a  commodity 
will  increase  during  the  three  stages  by  a  definite  amount,  say  30  +  31  +32,  and 
that  the  final  product  will  be  equal  to,  say,  ninety-three  days  of  labour ;  i.e.  a 
value  greater  than  the  value  of  the  labour  incorporated  in  it  by  the  amount  of 
the  customary  interest. 

Besides  this,  Rodbertus  deserves  the  severest  censure  that,  in  spite  of  his  own 
admission,  he  always  persists  in  developing  the  law  of  the  distribution  of  all  goods 
in  wages  and  rent  under  the  theoretical  hypothesis  that  all  goods  possess  "normal 
value  "  ;  that  is,  a  value  that  corresponds  to  their  labour  costs.  He  thinks  he  is 
justified  in  doing  this  because  the  ' '  normal  value,  in  regard  to  the  derivation 
both  of  rent  in  general  and  of  land-rent  and  capital-rent  in  particular,  is  the 
least  captious ;  it  alone  does  not  quietly  beg  the  question,  and  assume  what 
was  first  to  be  explained  by  it,  as  every  value  does  in  which  is  included  before- 
hand an  element  for  rent." 

Here  Rodbertus  is  grievously  mistaken.  He  begs  the  question  quite  as  im- 
properly as  any  of  his  opponents  ever  did  ;  only  in  an  opposite  way.  His 
opponents,  by  their  assumptions,  have  begged  the  question  of  the  existence  of 
interest.  Rodbertus  has  begged  the  question  of  its  non-existence.  In  taking  no 
notice  of  the  constant  divergence  from  "  normal  value  "  (which  divergence  gives 
natural  interest  its  source  and  its  nourishment),  he  himself  altogether  abstracts 
the  chief  feature  in  the  phenomenon  of  interest 


358  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

amount  of  "  rent "  to  be  gained  in  a  production  does  not 
depend  upon  the  amount  of  the  capital  employed,  but 
exclusively  upon  the  amount  of  labour  connected  with  the 
production. 

Supposing  that  in  a  certain  industrial  production — for  ex- 
ample, in  a  shoemaking  business — ten  labourers  are  employed. 
Each  labourer  produces  per  year  a  product  of  the  value  of  £100. 
The  necessary  maintenance  which  he  receives  as  wages  claims  £50 
of  this  sum.  Thus,  whether  the  capital  employed  be  large  or  small, 
the  year's  rent  (as  we  shall  call  it  with  Eodbertus)  drawn  by 
the  undertaker  will  amount  to  £500.  If  the  capital  employed 
amounts,  say  to  £1000,  namely,  £500  for  wages  of  labour  and 
£500  for  material,  then  the  rent  will  make  up  50  per  cent  of 
the  capital.  If  in  another  production,  say  a  jeweller's 
business,  ten  labourers  likewise  are  employed,  then,  under  the 
assumption  that  the  value  of  products  is  regulated  by  the 
amount  of  labour  incorporated  in  them,  they  also  will  produce 
another  yearly  product  of  £100  each,  of  which  the  half  falls 
to  them  as  wages,  while  the  other  half  falls  to  the  undertaker 
as  rent.  But  as  in  this  case  the  material,  the  gold,  represents 
a  considerably  higher  value  than  the  leather  of  the  shoemaking 
business,  the  total  rent  of  £500  is  distributed  over  a  far 
larger  business  capital.  Assume  that  the  jeweller's  capital 
amounts  to  £20,000,  £500  for  wages  and  £19,500  for 
material,  then  the  rent  of  £500  will  only  show  a  2^  per  cent 
interest  on  the  business  capital. 

Both  examples  are  carried  out  entirely  on  the  lines  of 
Eodbertus's  theory. 

As  in  almost  every  "  manufacture  "  the  proportion  between 
the  number  of  the  (directly  and  indirectly)  employed  labourers 
and  the  amount  of  business  capital  employed  is  different,  it 
follows  that,  in  almost  every  manufacture,  business  capital  must 
bear  interest  at  the  most  various  possible  rates.  Now  even 
Rodbertus  does  not  venture  to  maintain  that  this  is  really 
the  case  in  everyday  life.  On  the  contrary,  in  a  remark- 
able passage  in  his  theory  of  land-rent,  he  assumes  that,  in 
virtue  of  the  competition  of  capitals  over  the  whole  field  of 
manufacture,  an  equal  rate  of  profit  will  become  established. 
I  will  give  the  passage  in  his  own  words.  After  remarking 
that  the  rent  derived  from  manufacture  is  considered  wholly 


CHAP,  ii  CONTRADICTIONS  359 

as  profit  on  capital,  since  here  it  is  exclusively  wealth  in  the 
form  of  capital  that  is  employed,  he  goes  on  to  say : — 

"  This,  further,  will  give  a  rate  of  profit  which  will  tend  to 
the  equalisation  of  profits,  and  according  to  this  rate,  therefore, 
must  be  calculated  that  profit  which,  as  one  part  of  the  rent 
falling  to  the  raw  product,  accrues  to  the  capital  required  for 
agriculture.  For  if,  in  consequence  of  the  universal  presence 
of  value  in  exchange,  there  now  exists  a  homonymous  standard 
for  indicating  the  ratio  between  return  and  resources,  this 
standard,  in  the  case  of  the  portion  of  rent  accruing  to  the 
capital  employed  in  manufacture,  also  serves  to  indicate  the 
ratio  between  profit  and  capital.  In  other  words,  it  will  be 
right  to  say  that  the  profit  in  any  trade  amounts  to  ten  per 
cent  of  the  capital  employed.  This  rate  will  then  furnish  a 
standard  for  the  equalisation  of  profits.  In  whatever  trade 
this  rate  indicates  a  higher  profit,  competition  will  cause 
increased  investment  of  capital,  and  thereby  cause  a  universal 
tendency  towards  the  equalising  of  profits.  Similarly  no  one 
will  invest  capital  where  he  does  not  expect  profit  correspond- 
ing to  this  rate." 

It  will  repay  us  to  look  more  closely  into  this  passage. 

Rodbertus  speaks  of  competition  as  that  factor  which  will 
establish  a  uniform  rate  of  profit  over  the  field  of  manufacture. 
In  what  manner  it  will  do  so  is  only  slightly  indicated  by 
him.  He  assumes  that  every  rate  of  profit  which  is  higher 
than  the  average  level  is  reduced  to  the  average  by  an  increase 
of  the  supply  of  capital ;  and  we  may  supplement  this  by 
saying  that  every  lower  rate  of  profit  is  raised  to  the  average 
level  by  the  flowing  off  of  capital. 

Let  us  continue  a  little  farther  the  consideration  of  the 
process  from  the  point  at  which  Rodbertus  breaks  off.  In 
what  manner  can  an  increased  supply  of  capital  level  down  the 
abnormally  high  rate  of  profit  ?  Clearly  in  this  way;  that  with 
the  increased  capital  the  production  of  the  particular  article  is 
increased,  and  through  the  increase  of  supply  the  exchange 
value  of  the  product  is  lowered  till  such  time  as  after  deduct- 
ing the  wages  of  labour,  it  only  leaves  the  usual  rate  of  profit 
as  rent.  In  our  above  example  of  the  shoemaking  business 
we  might  evidently  have  pictured  to  ourselves  the  levelling 
down  of  the  abnormal  rate  of  profit  of  50  per  cent  to  the 


360  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

average  rate  of  5  per  cent  in  the  following  manner.  Attracted 
by  the  high  rate  of  profit  of  5  0  per  cent,  a  great  many  persons 
will  go  into  the  shoemaking  business.  At  the  same  time 
those  who  have  been  engaged  in  producing  will  extend 
their  business.  Thus  the  supply  of  shoes  is  increased,  and 
their  price  and  exchange  value  reduced.  This  process  will 
continue  till  such  time  as  the  exchange  value  of  the  year's 
product  of  ten  labourers  in  the  shoemaking  trade  is  reduced 
from  £1000  to  £550.  Then  the  undertaker,  after  deducting 
£500  for  necessary  wages,  has  only  £50  over  as  rent,  which, 
distributed  over  a  business  capital  of  £1000,  shows  interest 
at  the  usual  rate  of  5  per  cent.  On  reaching  this  point  the 
exchange  value  of  shoes  will  require  to  remain  fixed  if  the 
profit  in  the  shoemaking  trade  is  not  to  become  abnormal 
again,  in  which  case  a  repetition  of  the  process  of  levelling 
down  would  ensue. 

On  the  same  analogy,  if  the  rate  of  profit  in  the  jeweller's 
trade  be  under  the  average,  say  2^  per  cent,  it  will  be  raised 
to  5  per  cent  in  this  way.  The  profit  in  jewellery  being  so 
small,  its  manufacture  will  be  curtailed,  the  supply  of 
jewellery  thereby  reduced  and  its  exchange  value  raised,  till 
such  time  as  the  additional  product  of  ten  labourers  in  the 
jewellery  trade  reaches  an  exchange  value  of  £1500.  There 
now  remain  to  the  undertaker,  after  deducting  £500  for 
necessary  wages,  £1000  as  rent,  this  being  interest  on  the 
business  capital  of  £20,000  at  the  usual  rate  of  5  per  cent. 
Thus  is  reached  the  resting-point  at  which  the  exchange  value 
of  jewellery,  as  in  the  former  example  the  exchange  value  of 
shoes,  may  remain  steady. 

Before  going  farther  I  shall,  by  looking  at  the  matter  from 
another  side,  make  entirely  clear  the  important  point  that 
the  levelling  of  abnormal  profits  cannot  take  place  without 
a  steady  alteration  in  the  exchange  value  of  the  products 
concerned. 

If  the  exchange  value  of  the  products  were  to  remain  un- 
altered, then  an  insufficient  rate  of  profit  could  only  be  raised 
to  the  normal  level  if  the  difference  were  made  up  at  the  cost 
of  the  labourers'  necessary  wages.  For  example,  if  the  .product 
of  ten  labourers  in  the  jewellery  manufacture  retained  without 

' 


CHAP,  ii  CONTRADICTIONS 

labour  expended,  then  evidently  a  levelling  up  of  the  rate  of 
profit  to  5  per  cent-that  is,  an  increase  in  the  amount  of 
profit  from  £500  to  £1000— is  only  conceivable  if  the  wages 
which    the  ten  labourers  have  hitherto  received  were 
wholly  withdrawn,  and  the  entire  product  handed  over  to  the 
capitalist  as   profit.     To  say  nothing  of  the  fact  that  such  a 
supposition  contains  in  itself  a  simple  impossibility,  I  nee 
merely  point  out  that  it  is  equally  opposed  to  experience  and 
to  Rodbertus's  own  theory.     It  is  contrary  to  experience;  for 
experience  shows  that  the  usual  effect  of  a  restriction  of  supply 
in7ny  branch  of  production  is  not  a  depression  of  the  wages 
of  labour,  but  a  raising  of  the  prices  of  product     **£* 
experience  does  not  bear  witness  that  the  wages  of  labour  in 
such   trr-des  as   require   a  large  investment  of  capital,  stand 
eTntially  lower  than  in  other  trades-which would  nece^anly 
£  the  caL  if  the  demand  for  a  higher  profit  bad  to  be  me 
from  wa-es  instead  of  from  prices  of  product     And  it  is  als< 
cTntrarv°to  Eodbertus's  own  theory.     For  that  theory  assumes 
that  the  labourers  in  the  long  run  always  receive  the  amoun 
of  the  necessary  costs  of  their  maintenance  as  wages,— a  la 
which  would  be  sensibly  violated  by  this  kind  of  equalisation 

It  is  just  as  easy  to  show  conversely  that,  if  the  value  of  the 
products  remained  unaltered,  a  limitation  of  profits  could  only 
take  place  by  raising  the  wages  of  the  labourers  in  the  trades 
concerned  above  the  normal  scale,  which  again,  as  we  have  said, 
is  contrary  to  experience  and  to  Rodbertus's  own  theory 

I  may  venture  then  to  claim  that  I  have  described  the 
process  of  the  equalisation  of  profits  in  accordance  with  fa  3ts 
and  in  accordance  with  Rodbertus's  own  hypothesis,  when  I 
assume  that   the  return  of   profits  to   their   normal  level  is 
brought    about    by  means    of    a    steady   alteration    m     he 
exchange    value    of    the    products    concerned.       But    ] 
year's  product  of  ten  labourers  in  the  shoemaking  trade  has 
an  exchange  value  of  £550,  and  the  year's  product  of  ten 
labourers  in  the  jewellery  trade  has   an   exchange   value    of 
£1 5 00— and   it  must  be   so   if    the  equalisation  of    pro! 
assumed    by  Rodbertus   always  takes  place,— what  becomes 
of  his  assumption  that  products   exchange   according   to  1 
labour  incorporated  in  them?     And  if,  from  the  employment 
of   the  same  amount  of  labour,  there  result  in  the  one 


362  RODBERTUS' S  EXPLOITATION  THEORY     BOOK  vi 

£50,  in  the  other  £1000  as  rent,  what  becomes,  further,  of 
the  doctrine  that  the  amount  of  rent  to  be  obtained  in  a  pro- 
duction is  not  regulated  by  the  amount  of  capital  employed, 
but  only  by  the  amount  of  labour  performed  in  it  ? 

The  contradiction  in  which  Rodbertus  has  involved  himself 
here  is  as  obvious  as  it  is  insoluble.  Either  products  do  really 
exchange,  in  the  long  run,  in  proportion  to  the  labour  incor- 
porated in  them,  and  the  amount  of  rent  in  a  production  is 
really  regulated  by  the  amount  of  labour  employed  in  it, — in 
which  case  an  equalisation  of  profits  is  impossible ;  or  there 
is  an  equalisation  of  the  profits  of  capital, — in  which  case  it  is 
impossible  that  products  should  continue  to  exchange  in  pro- 
portion to  the  labour  incorporated  in  them,  and  that  the  amount 
of  labour  spent  should  be  the  only  thing  that  determines  the 
amount  of  rent  obtainable.  Rodbertus  must  have  noticed 
this  very  evident  contradiction  if  he  had  only  devoted  a  little 
real  reflection  to  the  manner  in  which  profits  become  equalised, 
instead  of  dismissing  the  subject  in  the  most  superficial  way 
with  his  phrase  about  the  equalising  effect  of  competition. 

But  we  are  not  done  with  criticism.  The  whole  explana- 
tion of  land -rent,  which,  with  Rodbertus,  is  so  intimately 
connected  with  the  explanation  of  interest,  is  based  upon  an 
inconsistency  so  striking  that  the  author's  carelessness  in  not 
observing  it  is  almost  inconceivable. 

There  are  only  two  possibilities  here:  either,  as  the  effect  of 
competition,  an  equalisation  of  profits  does  take  place,  or  it  does 
not.  Assume  first  that  it  does  take  place.  What  justifica- 
tion has  Rodbertus  for  supposing  that  the  equalisation  will 
certainly  embrace  the  whole  sphere  of  manufacture,  but  will 
come  to  a  halt,  as  if  spellbound,  at  the  boundary  of  raw  pro- 
duction ?  If  agriculture  promises  an  attractive  profit  why 
should  not  more  capital  flow  to  it  ?  why  should  not  more  land 
be  cultivated,  or  the  land  be  more  intensively  cultivated,  or 
cultivated  by  more  improved  methods,  till  the  exchange  value 
of  raw  products  comes  into  correspondence  with  the  increased 
capital  now  devoted  to  agriculture,  and  yields  to  it  also  no 
more  than  the  common  rate  of  profit  ?  If  the  "  law  "  that  the 
amount  of  rent  is  not  regulated  by  the  outlay  of  capital,  but 
only  by  the  amount  of  labour  expended,  has  not  prevented 
equalisation  in  manufacture,  how  could  it  prevent  it  in  raw 


CHAP.  II 


CRITICISED  AS  A    WHOLE 

production?     But  what  in   that  case  would   become  of  the 
constant  surplus  over  the  usual  rate  of  profit,  the  land-rent  ? 

Or  assume  that  an  equalisation  does  not  take  place.  In  that 
case  there  being  no  universal  rate  of  profit,  then  in  agriculture, 
as  in  everything  else,  there  is  no  definite  rule  as  to  how  much 
"rent"  one  may  calculate  as  profit  of  capital.  And,  finally, 
there  is  no  division  line  between  capital  and  rent  of  land. 

Therefore,  in  either  case,  whether  an  equalisation  of  pro 
does  take  place  or  does  not,  Rodbertus's  theory  of  land-rent  hangs 
in  the  air      There  is  contradiction  upon  contradiction,  and  that, 
moreover,  not  in  trifles,  but  in  the  fundamental  doctrines  of  the 
theory. 

My  criticism  has  hitherto  been  directed  to  the  individual 
parts  of  Rodbertus's  theory.  I  may  conclude  by  putting  the 
theory  as  a  whole  to  the  test.  If  correct,  it  must  be 
competent  to  give  a  satisfactory  explanation  of  the  pheno- 
menon of  interest  as  presented  in  actual  economic  life,  and 
moreover,  of  all  the  essential  forms  in  which  it  presents  itself. 
If  it  cannot  do  so,  it  is  self-condemned ;  it  is  not  correct 

I  now  maintain,  and  shall  attempt  to  prove,  that  although 
Rodbertus's  Exploitation  theory  might  possibly  account  for  the 
interest  borne  by  that  part  of  capital  which  is  invested  in  wages 
it  is  absolutely  impossible  for  it  to  explain  the  interest  on  that 
part  of  capital  which  is  invested  in  the  materials  of  manufacture. 
Let  the  reader  judge. 

A  jeweller  whose  chief  business  it  is  to  make  strings,  ot 
pearls,  employs  annually  five  labourers  to  make  strings  to  the 
value  of  £100,000,  and  sells  them  on  an  average  in  a  years 
time  He  will  accordingly  have  a  capital  of  £100,000  con- 
stantlv  invested  in  pearls,  which,  at  the  usual  rate  of  interest, 
must  "yield  him  a  clear  annual  profit  of  £5000.  We  now  ask, 
How  is  it  to  be  explained  that  he  gets  this  income? 

Rodbertus  answers,  Interest  on  capital  is  a  profit  of  plunder, 
got  by  curtailing  the  natural  and  just  wages  of  labour.  Wages 
of  what  labour  ?  Of  the  five  labourers  who  sorted  and  strung 
the  pearls  ?  That  cannot  well  be ;  for  if,  by  curtailing  the  just 
wages  of  the  five  labourers,  one  could  gain  £5000,  then  the 
iust  wages  of  these  labourers  must,  in  any  case,  have  amounted 
to  more  than  £5000.  That  is  to  say,  these  wages  must  have 


364  RODBERTUS'S  EXPLOITATION  THEORY     BOOK  vi 

amounted,  in  any  case,  to  more  than  £1000  per  man, — a  height 
of  just  wages  that  can  hardly  be  taken  seriously,  especially  as 
the  business  of  sorting  and  stringing  pearls  is  very  little  above 
the  character  of  unskilled  labour. 

But  let  us  look  a  little  farther.  Perhaps  it  is  the  labourers 
of  an  earlier  stage  of  production  from  the  product  of  whose 
labour  the  jeweller  obtains  his  stolen  profit ;  say  the  pearl- 
fishers.  But  the  jeweller  has  not  coine  into  contact  at  all 
with  these  labourers,  for  he  buys  his  pearls  direct  from 
an  undertaker  of  pearl-fishing,  or  from  a  middleman ;  he  has 
therefore  had  no  opportunity  whatever  of  deducting  from  the 
pearl-fishers  a  part  of  their  product,  or  a  part  of  the  value  of 
their  product.  But  perhaps  the  undertaker  of  pearl-fishing  has 
done  so  instead  of  him,  so  that  the  jeweller's  profit  originates 
in  a  deduction  which  the  undertaker  of  the  pearl-fishing  has 
made  from  the  wages  of  his  labourers.  That,  however,  is  im- 
possible ;  for  clearly  the  jeweller  would  make  his  profit  even  if 
the  undertaker  of  the  pearl-fishing  had  made  no  deduction  what- 
ever from  the  wages  of  his  labourers.  Even  if  this  latter  under- 
taker were  to  divide  among  his  labourers  as  wages  the  whole 
£100,000  that  the  pearls  so  obtained  are  worth — the  whole 
£10  0,0  0  0  he  receives  from  the  jeweller  as  purchase  money — then 
it  only  comes  to  this,  that  he  makes  no  profit.  It  in  no  wise 
follows  that  the  jeweller  loses  his  profit.  For  to  the  jeweller 
it  is  a  matter  of  complete  indifference  how  this  purchase  money 
which  he  pays  is  distributed,  so  long  as  the  price  is  not  raised. 
Whatever  then  be  the  flights  of  our  fancy,  we  shall  seek  in  vain 
for  the  labourers  from  whose  just  wages  the  jeweller's  profit  of 
£5000  could  possibly  have  been  withheld. 

Perhaps,  however,  even  after  this  illustration  there  may 
be  some  readers  still  unconvinced.  Perhaps  they  may  think 
it  certainly  a  little  strange  that  the  labour  of  the  five  pearl 
stringers  should  be  the  source  from  which  the  jeweller  can 
exploit  so  considerable  a  profit  as  £5000,  but  yet  not  quite 
inconceivable.  Let  me  therefore  bring  forward  another  and 
still  more  striking  illustration, — a  good  old  example  by  which 
many  an  interest  theory  has  already  been  tested  and  found  false. 

The  owner,  of  a  vineyard  has  harvested  a  cask  of  good  young 
wine.  Immediately  after  the  vintage  it  has  an  exchange  value 
of  £10.  He  lets  the  wine  lie  undisturbed  in  the  cellar,  and 


CHAP.   II 


CRITICISED  AS  A    WHOLE  365 


after  a  dozen  years  the  wine,  now  of  course  an  old  wine,  has  an 
exchange  value  of  £20.  This  is  a  well-known  fact.  The 
difference  of  £10  faUs  to  the  owner  of  the  wine  as  interest  on 
the  capital  contained  in  the  wine.  Now  who  are  the  labourers 
that  are  exploited  by  this  profit  of  capital  ? 

During  the    storage    there   has    been    no   further    labour 
expended  on  the  wine.     The  only  conceivable  thing  is  that  the 
exploitation  has  been  at  the  expense  of  those  labourers  who 
produced  the  new  wine.     The  owner  of  the  vineyard  has  paid 
them  too  small  a  wage.     But  I  ask,  How  much  ought  he  « in 
justice"  to  have  paid  them  as  wage?.     Even  if  he  pays  them 
the  entire  £10,  which  was  the  value  of  the  new  wine  at  the 
time  of  harvest,  there  stills  remains  to  him  the  increment  in 
value  of  £10,  which  Kodbertus  brands  as  profit  of  plunder. 
Indeed  even  if  he  pays  them  £12  or  £15  as  wages,  the  accu- 
sation of  plundering  will  still  hang  over  him  ;  he  will  only  be 
free  from  it  if  he  has  paid  the  full  £20.     Now  can  any  one 
seriously  ask  that  £20  should  be  paid  as  "  just  wages  of  labour  " 
for  a  product  that  is  not  worth  more  than  £10  ?     Does  the 
owner  know  beforehand  whether    the  product  will    ever   be 
worth  £20  ?     Is  it  not  possible  that  he  might  be  forced,  con- 
trary to  his  original  intention,  to  use  or  to  .sell  the  wine  before 
the  expiry  of  twelve  years?     And  would  he  not  then  have 
paid  £20*for  a  product  that  was  never  worth  more  than  £10  or 
perhaps  £12  ?     And  then,  how  is  he  to  pay  the  labourers  who 
produce  that  other  new  wine  which  he  sells  at  once  for  £10? 
Is  he  to  pay  them  also  £20  ?     Then  he  will  be  ruined.     Or 
only  £10  ?      Then  different    labourers  will  receive  different 
wages  for  precisely  similar  work,  which  again  is  unjust ;  not  to 
mention  the  fact  that  a  man  cannot  very  well  know  beforehand 
whose  product  it  is  that  will  be  sold  at  once,  and  whose  stored 
up  for  a  dozen  years. 

But  still  further.  Even  a  £20  wage  for  a  cask  of  new 
wine  would  not  be  enough  to  protect  the  vine-grower  from  the 
accusation  of  robbery ;  for  he  might  let  the  wine  lie  in  the 
cellar  twenty-four  years  instead  of  twelve,  and  then  it  would 
be  worth  not  £2 0  but  £40.  Is  he  then,  justly  speaking,  bound 
to  pay  the  labourers  who,  twenty-four  years  before  that,  have 
produced  the  wine,  £40  instead  of  £10  ?  The  idea  is  too 
absurd.  But  if  he  pays  them  only  £10  or  £20,  then  he  makes 


368  RODBERTUS^S  EXPLOITATION  THEORY     BOOK  vi 

a  profit  on  capital,  and  Kodbertus  declares  that  he  has  curtailed 
the  labourer's  just  wage  by  keeping  back  a  part  of  the  value 
of  his  product ! 

I  scarcely  think  any  one  will  venture  to  maintain  that 
the  cases  of  interest  which  have  been  brought  forward,  and  the 
numerous  cases  analogous  to  them,  are  explained  by  Eodbertus's 
theory.  But  a  theory  which  has  failed  to  explain  any  important 
part  of  the  phenomena  to  be  explained  cannot  be  the  true  one, 
and  so  this  final  examination  brings  us  to  the  same  result  as 
the  detailed  criticism  which  preceded  it  might  lead  us  to  expect. 
Rodbertus's  Exploitation  theory  is,  in  its  foundation  and  in  its 
conclusions,  wrong ;  it  is  in  contradiction  with  itself  and  with 
the  circumstances  of  actual  life. 

The  nature  of  my  critical  task  is  such  that,  in  the  foregoing 
pages,  I  could  not  choose  but  confine  myself  to  one  side — that  of 
pointing  out  the  errors  into  which  Rodbertus  had  fallen.  I 
consider  it  due  to  the  memory  of  this  distinguished  man  to 
acknowledge,  in  equally  candid  terms,  his  conspicuous  merits 
as  regards  the  development  of  the  theory  of  political  economy. 
Unfortunately,  to  dwell  on  these  lies  beyond  the  limits  of  my 
present  task. 


CHAPTER  III 

MAKX 

MARX1  starts  from  the  proposition  that  the  exchange  value2 
of  all  goods  is  regulated  entirely  by  the  amount  of  labour  which 
their  production  costs.  He  lays  much  more  emphasis  on 
this  proposition  than  does  Rodbertus.  While  Rodbertus  only 
mentions  it  incidentally,  in  the  course  of  Ms  argument  as  it 
were,  and  puts  it  very  often  in  the  shape  of  a  hypothetical 
assumption  without  wasting  any  words  in  its  proof,  Marx 
makes  it  his  fundamental  principle,  and  goes  thoroughly  into 
statement  and  explication.  To  be  just  to  the  peculiar  dia- 
lectical style  of  the  author  I  must  give  the  essential  parts  of 
the  theory  in  his  own  words. 

"  The  utility  of  a  thing  gives  it  a  value  in  use.  But  this 
utility  is  not  something  in  the  air.  It  is  limited  by  the  pro- 
perties of  the  commodity,  and  has  no  existence  apart  from  that 
commodity.  The  commodity  itself,  the  iron,  corn,  or  diamond, 
is  therefore  a  use  value  or  good.  .  .  .  Use  values  constitute  the 
matter  of  wealth,  whatever  be  their  social  form.  In  the  social 
form  we  are  about  to  consider  they  constitute  at  the  same 
time  the  material  substratum  of  exchange  value.  Exchange 
value  in  the  first  instance  presents  itself  as  the  quantitative 

1  Zur  Kritik  der  politischen-Oekonomie,  Berlin,  1859.    Das  Kapital,  Kritik 
der  politischen-Oekoiwmic,  vol.  i.  first  edition,  Hamburg,  1867  ;  second  edition, 
1872.       English   translation   by  Moore  and   Aveling,  Sonnenschein,    1887.       1 
quote  from  Das  Kapital  as  the  book  in  which  Marx  stated  his  views  last  and 
most  in  detail.     On  Marx  also  Knies  has  made  some  very  valuable  criticisms,  of 
which  I  make  frequent  use  in  the  sequel.     Most  of  the  other  attempts  to  criticise 
and  refute  Marx's  work  are  so  far  below  that  of  Knies  in  value  that  I  have  not 
found  it  useful  to  refer  to  them. 

2  With  Marx  simply  called  Value. 


368  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

relation,  the  proportion  in  which  use  values  of  one  kind  are 
exchanged  for  those  of  another  kind,  a  relation  constantly 
changing  with  time  and  place.  Hence  exchange  value  seems 
to  be  something  accidental  and  purely  relative,  and  an  intrinsic 
value  in  exchange  seems  a  contradiction  in  terms.  Let  us 
look  at  the  matter  more  closely. 

"  A  single  commodity,  e.g.  a  quarter  of  wheat,  exchanges 
with  other  articles  in  the  most  varying  proportions.  Still  its 
exchange  value  remains  unaltered,  whether  expressed  in  X 
boot-blacking,  Y  silk,  or  Z  money.  It  must  therefore  have  a 
content  distinct  from  those  various  forms  of  expression.  Now 
let  us  take  two  commodities,  wheat  and  iron.  Whatever  be 
the  proportion  in  which  they  are  exchangeable,  it  can  always 
be  represented  by  an  equation,  in  which  a  given  quantity  of 
wheat  appears  as  equal  to  a  certain  quantity  of  iron.  For 
instance,  1  quarter  wheat  =  1  cwt.  of  iron.  What  does  this 
equation  tell  us  ?  It  tells  us  that  there  is  a  common  element 
of  equal  amount  in  two  different  things — in  a  quarter  of  wheat 
and  in  a  cwt.  of  iron.  The  two  things  are  therefore  equal  to  a 
third,  which  in  itself  is  neither  the  one  nor  the  other.  Each 
of  the  two,  so  far  as  it  is  an  exchange  value,  must  therefore  be 
reducible  to  that  third.  .  .  .  This  common  element  cannot  be  a 
geometrical,  physical,  chemical,  or  other  natural  property  of  the 
commodities.  Their  physical  properties  only  come  into  con- 
sideration so  far  as  they  make  the  commodities  useful ;  that  is, 
make  them  use  values!  But,  on  the  other  hand,  the  exchange 
relation  of  goods  evidently  involves  our  disregarding  their 
use  value.  Within  this  relation  one  use  value  counts  for  just 
as  much  as  any  other,  provided  only  it  be  present  in  due 
proportion.  Or,  as  old  Barbon  says,  "  one  sort  of  wares  is  as 
good  as  another  if  the  value  be  equal."  There  is  no  difference 
or  distinction  in  things  of  equal  value.  One  hundred  pounds' 
worth  of  lead  or  iron  is  of  as  great  a  value  as  one  hundred 
pounds'  worth  of  silver  and  gold."  As  use  values,  commodities 
are,  first  and  foremost,  of  different  qualities ;  as  exchange  values 
they  can  only  be  of  different  quantities,  and  contain  therefore 
not  an  atom  of  use  value. 

"  If  then  we  disregard  the  use  value  of  commodities,  they 
have  only  one  common  property  left,  that  of  being  products  of 
labour.  But  even  as  the  product  of  labour  they  have  changed 


SOCIALL  Y  NECLSSAR  Y  LABOUR 

in  our  hand.  For  if  we  disregard  the  use  value  of  a  commodity, 
we  disregard  also  the  special  material  constituents  and  shapes 
which  rive  it  a  use  value.  It  is  no  longer  a  table,  a  house, 
yarn  or  any  other  useful  thing.  All  its  sensible  qualities 
have  disappeared.  Nor  is  it  any  longer  the  product  of  the 
labour  of  the  joiner,  the  mason,  the  spinner,  or  of  any  othe 
distinct  kind  of  productive  labour.  With  the  useful  character 
of  the  products  of  labour  disappears  the  useful  character  of  the 
labours  embodied  in  them,  and  also  the  different  concrete  forms, 
of  these  labours;  they  are  no  longer  distinguished  from -each 
other,  but  are  all  reduced  to  equal  human  labour,  abstract 

human  labour. 

«  Consider  now  what  is  left.  It  is  nothing  but  the  same 
immaterial  objectivity,  a  mere  congelation  of  homogeneous 
human  labour,  i.e.  of  labour  power  expended  without  regard  to 
the  form  of  its  expenditure.  All  that  these  things  now  tell  us 
is  that  human  labour  was  expended  in  their  production,  that 
human  labour  is  stored  up  in  them  ;  as  crystals  of  this  common 
social  substance  they  are— Values.  ...  A  use  value  or  good, 
therefore,  only  has  a  value  because  abstract  human  labour  is 
objectified  or  materialised  in  it." 

As  labour  is  the  source  of  all  value,  so,  Marx  continues, 
the  amount  of  the  value   of  all   goods   is   measured  by   the 
quantity  of    labour   contained   in    them,   or   in    labour   time 
But  not  by  that  particular  labour  time  which  the  individual 
who  made  the  good  might  find  necessary,  but  by  the  "socially 
necessary  labour  time."     This  Marx  explains  as  the  "labour 
time  required  to  produce  a  use  value  under  the  conditions  of 
production  that  are  socially  normal  at  the  time,  and  with  the 
socially  necessary  degree  of  skill  and  intensity  of  labour.' 
is  only  the  quantity  of  socially  necessary  labour,  or  the  labour 
time  socially  necessary  for  the  making  of  a  use  value,  that 
determines  the  amount  of  the  value.     "  The  single  commodity 
here   is   to  be   counted   as   the   average   sample  of  its   class. 
Commodities,  therefore,  in  which  equally  great  amounts  of  labour 
are  contained,  or  which  could  be  made  in  the  same  labour  time, 
have  the  same  amount  of  value.     The  value  of  one  commodity 
is  to  the  value  of  every  other  commodity  as  the  labour  time 
necessary  to  the  production  of  the  one  is  to  the  labour  time 
necessary  to  the  production  of  the  other.  ...  As  values  all 

2  B 


370  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

commodities  are  only  definite  amounts  of  congealed  labour 
time."1 

Later  on  I  shall  try  to  estimate  the  value  of  these  funda- 
mental principles  which  Marx  puts  forward  on  the  subject  of 
value.  In  the  meantime  I  go  on  to  his  theory  of  interest. 

Marx  finds  the  problem  of  interest  in  the  following 
phenomenon.  The  usual  circulation  of  commodities  carried  on 
by  the  medium  of  exchange,  money,  proceeds  in  this  way  :  one 
man  sells  the  commodity  which  he  possesses  for  money,  in 
order  to  buy  with  the  money  another  commodity  which  he 
requires  for  his  own  purposes.  This  course  of  circulation 
may  be  expressed  by  the  formula,  Commodity  —  Money  — 
Commodity.  The  starting  point  and  the  finishing  point  of 
the  circulation  is  a  commodity,  though  the  two  commodities 
be  of  different  kinds. 

"  But  by  the  side  of  this  form  of  exchange  we  find  another 
and  specifically  different  form,  namely,  Money — Commodity — 
Money;  the  transformation  of  money  into  a  commodity  and  the 
transformation  back  again  of  the  commodity  into  money — buy- 
ing in  order  to  sell.  Money  that  in  its  movement  describes  this 
circulation  becomes  capital,  and  is  already  capital  when  it  is 
dedicated  to  be  used  in  this  way.  ...  In  the  simple  circulation 
of  commodities  the  two  extremes  have  the  same  economic  form. 
They  are  both  commodities.  They  are  also  of  the  same  value. 
But  they  are  qualitatively  different  use  values,  as,  for  instance, 
wheat  and  clothes.  The  essence  of  the  movement  consists  in 
the  exchange  of  those  products  in  which  the  labour  of  society  is 
embodied.  It  is  different  with  the  circulation  M — C — M.  At 
the  first  glance  it  looks  as  if  it  were  meaningless,  because 
tautological.  Both  extremes  have  the  same  economic  form. 
They  are  both  money,  and  therefore  not  qualitatively  different 
use  values,  for  money  is  but  the  converted  form  of  commodities 
in  which  their  different  use  values  are  lost.  First  to  exchange 
£  1 0  0  for  wool,  and  then  to  exchange  the  same  wool  again  for 
£100 — that  is,  in  a  roundabout  way  to  exchange  money  for 
money,  like  for  like — seems  a  transaction  as  purposeless  as  it  is 
absurd.  One  sum  of  money  can  only  be  distinguished  from 
another  snm  of  money  by  its  amount.  The  process  M — C — M 
does  not  owe  its  character  therefore  to  any  qualitative  difference 

1  Das  Kapital,  second  edition,  p.  10,  etc. 


CHAP,  in  SURPLUS   VALUE  371 

between  its  extremes,  since  they  are  both  money,  but  only  to 
this  quantitative  difference.  At  the  end  of  the  process  more 
money  is  withdrawn  from  the  circulation  than  was  thrown  in 
at  the  beginning.  The  wool  bought  for  £100  is  sold  again, 
that  is  to  say,  for  £100  +  £10,  or  £110.  The  complete  form 
of  this  process  therefore  is  M — C — M',  where  M'  =  M  +  AM; 
that  is,  the  sum  originally  advanced  plus  an  increment.  This 
increment,  or  surplus  over  original  value,  I  call  Surplus  Value 
(Mehrwerth}.  The  value  originally  advanced,  therefore,  not  only 
remains  during  the  circulation,  but  changes  in  amount;  adds 
to  itself  a  surplus  value,  or  makes  itself  value.  And  this 
movement  changes  it  into  capital"  (p.  132). 

"  To  buy  in  order  to  sell,  or,  to  put  it  more  fully,  to  buy  in 
order  to  sell  at  a  higher  price,  M — C — M7,  seems  indeed  the 
peculiar  form  characteristic  of  one  kind  of  capital  only, 
merchant  capital.  But  industrial  capital  also  is  money  that 
changes  itself  into  commodities,  and  by  the  sale  of  these 
commodities  changes  back  into  more  money.  Acts  which  take 
place  outside  the  sphere  of  circulation,  between  the  buying  and 
the  selling,  do  not  make  any  alteration  in  the  form  of  the 
movement.  Finally,  in  interest  bearing  capital  the  circulation 
M — c — M'  presents  itself  in  an  abridged  form,  shows  its 
result  without  any  mediation,  en  style  lapidaire  so  to  speak, 
as  M — M';  i.e.  money  which  is  equal  to  more  money,  value 
which  is  greater  than  itself"  (p.  138). 

Whence  then  comes  the  surplus  value  ? 
Marx  works  out  the  problem  dialectically.  First  he 
declares  that  the  surplus  value  can  neither  originate  in  the 
fact  that  the  capitalist,  as  buyer,  buys  commodities  regularly 
under  their  value,  nor  in  the  fact  that  the  capitalist,  as  seller, 
sells  them  regularly  over  their  value.  It  cannot  therefore 
originate  in  the  circulation.  But  neither  can  it  originate  out- 
side the  circulation.  For  "outside  the  circulation  the  owner  of 
the  commodity  only  stands  related  to  his  own  commodity.  As 
regards  its  value  the  relation  is  limited  to  this,  that  the 
commodity  contains  a  quantity  of  the  owner's  own  labour 
measured  by  definite  social  laws.  This  quantity  of  labour  is 
expressed  in  the  amount  of  the  value  of  the  commodity  pro- 
duced/and, since  the  amount  of  the  value  is  expressed  in  money, 
the  quantity  of  labour  is  expressed  in  a  price,  say  £10.  But 


372  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

the  owner's  labour  does  not  represent  itself  in  the  value  of  the 
commodity  and  in  a  surplus  over  its  own  value — in  a  price  of 
£10,  which  is  at  the  same  time  a  price  of  £11 — in  a  value 
which  is  greater  than  itself !  The  owner  of  a  commodity  can 
by  his  labour  produce  value,  but  not  value  that  evolves  itself. 
He  can  raise  the  value  of  a  commodity  by  adding  new  value 
to  that  which  is  there  already,  through  new  labour ;  as,  e.g. 
in  making  boots  out  of  leather.  The  same  material  has  now 
more  value,  because  it  contains  a  greater  amount  of  labour. 
The  boot  then  has  more  value  than  the  leather,  but  the  value 
of  the  leather  remains  as  it  was.  It  has  not  evolved  itself; 
it  has  not  added  a  surplus  value  to  itself  during  the  making  of 
the  boot"  (p.  150). 

And  now  the  problem  stands  as  follows :  "  Our  money 
owner,  who  is  yet  only  a  capitalist  in  the  grub  stage,  must  buy 
the  commodities  at  their  value,  must  sell  them  at  their  value, 
and  yet  at  the  end  of  the  process  must  draw  out  more  money 
than  he  put  in.  The  bursting  of  the  grub  into  the  butterfly 
must  take  place  in  the  sphere  of  circulation,  and  not  in  the 
sphere  of  circulation.  These  are  the  conditions  of  the  problem. 
Hie  Ehodus,  hie  salta  !"  (p.  150). 

The  solution  Marx  finds  in  this,  that  there  is  one  commodity 
whose  use  value  possesses  the  peculiar  quality  of  being  the 
source  of  exchange  value.  This  commodity  is  the  capacity  of 
labour,  or  Labour  Power.  It  is  offered  -for  sale  on  the  market 
under  the  double  condition  that  the  labourer  is  personally  free, 
for  otherwise  it  would  not  be  his  labour  power  that  would 
be  on  sale,  but  his  entire  person  as  a  slave ;  and  that  the 
labourer  is  deprived  of  "  all  things  necessary  for  the  realising 
of  his  labour  power,"  for  otherwise  he  would  prefer  to  produce 
on  his  own  account,  and  to  offer  his  products  instead  of  his 
labour  power  for  sale.  It  is  by  trading  in  this  commodity 
that  the  capitalist  receives  the  surplus  value.  In  the  following 
way. 

The  value  of  the  commodity,  labour  power,  like  that  of  all 
other  commodities,  is  regulated  by  the  labour  time  necessary 
for  its  reproduction ;  that  is,  in  this  case,  by  the  labour  time 
that  is  necessary  to  produce  as  much  means  of  subsistence  as 
are  required  for  the  maintenance  of  the  labourer.  Say,  for 
instance,  that,  to  produce  the  necessary  means  of  subsistence 


CHAP,  in  UNPAID  LABOUR  373 

for  one  day,  a  social  labour  time  of  six  hours  is  necessary,  and 
assume  that  this  same  labour  time  is  embodied  in  three 
shillings  of  money,  then  the  labour  power  of  one  day  is  to  be 
bought  for  three  shillings.  If  the  capitalist  has  completed  this 
purchase,  the  use  value  of  the  labour  power  belongs  to  him,  and 
he  realises  it  by  getting  the  labourer  to  work  for  him.  If  he 
were  to  get  him  to  work  only  so  many  hours  per  day  as  are 
incorporated  in  the  labour  power  itself,  and  as  must  have  been 
paid  in  the  buying  of  the  same,  no  surplus  value  would  emerge. 
For,  according  to  the  assumption,  six  hours  of  labour  cannot 
put  into  the  product  in  which  they  are  incorporated  any  greater 
value  than  three  shillings,  and  so  much  the  capitalist  has  paid 
as  wage.  But  this  is  not  the  way  in  which  capitalists  act. 
Even  if  they  have  bought  the  labour  power  for  a  price  that  only 
corresponds  to  six  hours'  labour  time,  they  get  the  worker  to 
labour  the  whole  day  for  them.  And  now,  in  the  product 
made  during  this  day,  there  are  more  hours  of  labour  in- 
corporated than  the  capitalist  was  obliged  to  pay  for;  he  has 
consequently  a  greater  value  than  the  wage  he  has  paid,  and 
the  difference  is  the  "surplus  value"  that  falls  to  the  capitalist. 

To  take  an  example.  Suppose  that  a  worker  can  in  six 
hours  spin  10  Ibs.  of  Wool  into  yarn.  Suppose  that  this 
wool  for  its  own  production  has  required  twenty  hours  of 
labour,  and  possesses,  accordingly,  a  value  of  10s.  Suppose, 
further,  that  during  the  six  hours  of  spinning  the  spinner  uses 
up  so  much  of  his  tools  as  corresponds  to  the  labour  of  four 
hours,  and  represents  consequently  a  value  of  2s.  The  total 
value  of  the  means  of  production  consumed  in  the  spinning 
will  amount  to  12s.,  corresponding  to  twenty-four  hours'  labour. 
In  the  spinning  process  the  wool  "  absorbs  "  other  six  hours  of 
labour ;  the  yarn  spun  is  therefore,  on  the  whole,  the  product 
of  thirty  hours  of  labour,  and  will  have  in  conformity  a  value 
of  15s.  Under  the  assumption  that  the  capitalist  gets  the 
hired  labourer  to  work  only  six  hours  in  the  day,  the  making  of 
the  yarn  has  cost  the  capitalist  quite  15s. — 10s.  for  wool;  2s. 
for  wear  and  tear  of  tools ;  3s.  for  wage  of  labour.  There  is 
no  surplus  value  here. 

Quite  otherwise  is  it  if  the  capitalist  gets  the  labourer  to 
work  twelve  hours  a  day  for  him.  In  twelve  hours  the 
labourer  works  up  20  Ibs.  of  wool,  in  which  previously 


374  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

forty  hours  of  labour  have  been  incorporated,  and  which, 
consequently,  are  worth  20s.;  further  he  uses  up  in  tools  the 
product  of  eight  hours'  labour,  of  the  value  of  4s. ;  but  during  a 
day  he  adds  to  the  raw  material  twelve  hours'  labour, — that 
is,  a  new  value  of  6s.  And  now  the  balance-sheet  stands  as 
follows :  The  yarn  produced  during  a  day  has  cost  in  all  sixty 
hours'  labour;  it  has  therefore  a  value  of  30s.  The  outlays 
of  the  capitalist  amounted  to  20s.  for  wool,  4s.  for  wear  and 
tear  of  tools,  and  3s.  for  wage ;  in  all,  therefore,  only  2  7s. 
There  remains  now  a  "  surplus  value  "  of  3s. 

Surplus  value  therefore,  according  to  Marx,  is  a  con- 
sequence of  the  capitalist  getting  the  labourer  to  work  a 
part  of  the  day  for  him  without  paying  for  it.  In  the 
labourer's  work  day  two  portions  may  be  distinguished.  In 
the  first  part,  the  "  necessary  labour  time,"  the  worker  produces 
the  means  of  his  own  maintenance,  or  the  value  of  that 
maintenance ;  for  this  part  of  his  labour  he  receives  an 
equivalent  in  wage.  During  the  second  portion,  the  "  surplus 
labour  time,"  he  is  "  exploited  " ;  he  produces  "  surplus  value  " 
without  receiving  any  equivalent  whatever  for  it.1  "  Capital 
is  therefore  not  merely  a  command  over  labour,  as  Adam 
Smith  calls  it.  It  is  essentially  a  command  over  unpaid  labour. 
All  surplus  value,  in  whatever  particular  form  it  may  after- 
wards crystallise  itself,  be  it  profit,  interest,  rent,  or  any  other,  is 
in  substance  only  the  material  shape  of  unpaid  labour.  The 
secret  of  the  power  of  capital  to  evolve  value  is  found  in 
its  disposal  over  a  definite  quantity  of  the  unpaid  labour  of 
others"  (p.  554). 

In  this  statement  the  careful  reader  will  have  recognised 
— if  partly  in  a  somewhat  altered  dress — all  the  essential 
propositions  combined  by  Eodbertus  in  his  theory  of  interest : 
the  doctrine  that  the  value  of  goods  is  measured  by  quantity 
of  labour ;  that  labour  alone  creates  all  value ;  that  in  the 
loan  contract  the  worker  receives  less  value  than  he  creates, 
and  that  necessity  compels  him  to  acquiesce  in  this ;  that  the 
capitalist  appropriates  the  surplus  to  himself;  and  that 
consequently  the  profit  so  obtained  has  the  character  of 
plunder  from  the  produce  of  the  labour  of  others. 

1  Das  Kapital,  p.  205,  etc. 


CHAP,  in  RODBERTUS  AND  MARX  375 

On  account  of  the  substantial  agreement  of  both  theories, 
or,  to  speak  more  correctly,  of  both  ways  of  formulating  the 
same  theory,  almost  everything  that  I  have  adduced  against 
Eodbertus's  doctrine  has  equal  force  against  Marx.  I  may 
therefore  limit  myself  now  to  some  supplementary  remarks 
that  I  consider  necessary ;  partly  for  the  purpose  of  adapting 
my  criticism  in  particular  places  to  Marx's  peculiar  statement 
of  the  theory,  partly  also  for  dealing  with  some  new  matter 
introduced  by  Marx. 

Of  this  by  far  the  most  important  is  the  attempt  to  prove 
the  proposition  that  all  value  rests  on  labour,  instead  of  merely 
asserting  it.  In  criticising  Eodbertus  I  laid  as  little  emphasis 
on  that  proposition  as  he  had  done.  I  was  content  to  point 
out  some  undoubted  exceptions  to  it,  but  I  did  not  go  to  the 
root  of  the  matter.  In  the  case  of  Marx  I  neither  can  nor 
will  intermit  this.  It  is  true  that  in  doing  so  I  venture  on  a 
field  already  traversed  many  a  time,  and  by  distinguished 
writers.  I  can  scarcely  hope  then  to  bring  forward  much  that 
is  new.  But  in  a  book  which  has  for  its  subject  the  critical 
statement  of  theories  of  interest,  it  would  ill  become  me  to 
avoid  the  thorough  criticism  of  a  proposition  which  has  been 
placed  at  the  head  of  one  of  the  most  important  of  these 
theories,  as  its  most  important  fundamental  principle.  And, 
unfortunately,  the  present  position  of  our  science  is  not  such 
that  it  can  be  considered  superfluous  once  more  to  undertake 
this  task.  Although  this  proposition  is,  in  truth,  nothing  more 
than  a  fallacy  once  perpetrated  by  a  great  man,  and  repeated 
ever  since  by  a  credulous  crowd,  in  our  day  it  is  like  to  be 
accepted  in  widening  circles  as  a  kind  of  gospel. 

For  the  doctrine  that  the  value  of  all  goods  depends  upon 
labour,  the  proud  names  of  Adam  Smith  and  Eicardo  have 
usually  been  claimed  both  as  authors  and  authorities.  This 
is  correct;  but  it  is  not  altogether  correct.  The  doctrine 
is  to  be  found  in  the  writings  of  both;  but  Adam  Smith 
now  and  then  contradicts  it,1  and  Eicardp  so  narrows  the 

1  e.g.  when  in  the  fifth  chapter  of  the  second  book  he  says  of  the  farmer: 
"Not  only  his  labouring  servants,  but  his  labouring  cattle  are  productive 
labourers  ; "  and  further,  "  In  agriculture  too  Nature  labours  along  with  man, 
and  though  her  labour  costs  no  expense,  its  produce  has  its  value  as  well  as  that 
of  the  most  expensive  workmen."  See  also  Knies,  Der  Kredit,  part  H.  p.  62. 


376  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

sphere  within  which  it  is  valid,  and  surrounds  it  with  such 
important  exceptions,  that  it  is  scarcely  justifiable  to  assert 
that  he  has  represented  labour  as  the  universal  and  the 
exclusive  principle  of  value.  He  begins  his  Principles  with 
the  express  assertion  that  the  exchange  value  of  goods  has  its 
origin  in  two  sources — in  their  scarcity  and  in  the  quantity  of 
labour  that  their  production  has  cost.  Certain  goods,  such  as 
rare  statues  and  paintings,  get  their  value  exclusively  from  the 
former  source,  and  it  is  only  the  value  of  those  goods  that  can 
be  multiplied,  without  any  assignable  limit,  by  labour,  which  is 
determined  by  the  amount  of  labour  they  cost.  These  latter, 
indeed,  in  Ricardo's  opinion,  constitute  "by  far  the  greatest  part 
of  those  goods  which  are  the  objects  of  desire  " ;  but  even  in 
regard  to  them  Ricardo  finds  himself  compelled  to  a  further 
limitation.  He  has  to  admit  that,  even  in  their  case,  the 
exchange  value  is  not  determined  exclusively  by  labour; 
that  time  also — the  time  elapsing  between  the  advancing  of 
the  labour  and  the  realising  of  the  finished  product — has  a 
considerable  influence  on  it.1 

It  appears  then  that  neither  Adam  Smith  nor  Ricardo  have 
stated  the  principle  that  stands  in  their  name  in  such  an 
unqualified  way  as  they  generally  get  credit  for.  Still,  to  a 
certain  extent,  they  have  stated  it,  and  we  have  to  inquire  on 
what  grounds  they  did  so. 

On  seeking  to  answer  this  question  we  shall  make  a 
remarkable  discovery.  It  is  that  neither  Adam  Smith  nor 
Ricardo  have  given  any  reason  for  this  principle,  but  simply 
asserted  its  validity  as  something  self  -  explanatory.  The 
celebrated  passage  in  Adam  Smith,  which  Ricardo  afterwards 
verbally  adopted  in  his  own  doctrine,  runs  thus :  "  The  real 
price  of  everything,  what  everything  really  costs  to  the  man 
who  wants  to  acquire  it,  is  the  toil  and  trouble  of  acquiring  it. 
What  everything  is  really  worth  to  the  man  who  has  acquired 
it,  and  who  wants  to  dispose  of  it,  or  exchange  it  for  some- 
thing else,  is  the  toil  and  trouble  which  it  can  save  to  himself, 
and  which  it  can  impose  upon  other  people."  2 

Let  us  pause  here  a  moment.     The  tone  in  which  Adam 

1  See  above,  p.  354,  and  Knies  as  before,  p.  60,  etc. 

•  2   Wealth  of  Nations,  book  i.  chap.  v.  (p.  13  of  M'Culloch's  edition)  ;  Ricardo, 
Principles,  chap.  i. 


CHAP,  in  VALUE  AND  TROUBLE  377 

Smith  speaks  signifies  that  the  truth  of  these  words  must  be 
immediately  obvious.  But  is  it  •  really  obvious  ?  Are  value 
and  trouble  really  so  closely  related  that  the  very  concep- 
tion of  them  at  once  carries  conviction  that  trouble  is  the 
ground  of  value  ?  I  do  not  think  any  unprejudiced  person 
will  maintain  this.  That  I  have  given  myself  trouble  about  a 
thing  is  one  fact;  that  the  thing  is  worth  the  trouble  is 
another  and  a  different  fact ;  and  that  the  two  facts  do  not 
always  go  hand  in  hand  is  too  well  confirmed  by  experience 
for  any  doubt  about  it  to  be  possible.  It  is  confirmed  .by 
every  one  of  the  innumerable  cases  in  which,  from  want  of 
technical  skill,  or  from  unsuccessful  speculation,  or  simply  from 
ill-luck,  labour  is  every  day  being  followed  by  a  valueless 
result.  But  not  less  is  it  confirmed  by  every  one  of  the 
numerous  cases  where  little  trouble  is  rewarded  with  high 
gains ;  such  as  the  occupation  of  a  piece  of  land,  the  finding  of 
a  precious  stone,  the  discovery  of  a  gold  mine. 

But  not  to  mention  cases  that  may  be  considered  as 
exceptions  from  the  regular  course  of  things,  it  is  a  fact,  as 
indubitable  as  it  is  perfectly  normal,  that  the  same  amount  of 
labour  exerted  by  different  persons  has  a  quite  different  value. 
The  result  of  one  month's  labour  on  the  part  of  a  famous  artist 
is,  quite  regularly,  a  hundred  times  more  valuable  than  the  same 
period  of  labour  on  the  part  of  a  common  carpenter.  How 
could  that  be  possible  if  trouble  were  really  the  principle  of 
value  ?  How  could  it  be  possible  if,  in  virtue  of  some  immediate 
psychological  connection,  we  were  forced  to  base  our  estimate 
of  value  on  the  consideration  of  toil  and  trouble,  and  only 
on  that  consideration  ? l  Or  perhaps  it  is  that  nature  is  so 

1  Adam  Smith  gets  rid  of  the  difficulty  mentioned  in  the  text  as  follows  :  "  If 
the  one  species  of  labour  requires  an  uncommon  degree  of  dexterity  and  ingenuity, 
the  esteem  which  men  have  for  such  talents  will  naturally  give  a  value  to  their 
produce  superior  to  what  would  be  due  to  the  time  employed  about  it.  Such 
talents  can  seldom  be  acquired,  but  in  consequence  of  long  application  and  the 
superior  value  of  their  produce  may  frequently  be  more  than  a  reasonable  com- 
pensation for  the  time  and  labour  which  must  be  spent  in  acquiring  them " 
(book  i.  chap,  vi.) 

The  insufficiency  of  this  explanation  is  obvious.  In  the  first  place,  it  is  clear 
.that  the  higher  value  of  the  products  of  exceptionally  skilled  men  rests  on  a 
quite  different  foundation  from  the  "esteem  which  men  have  for  such  talents." 
How  many  poets  and  scholars  does  the  public  leave  to  starve  in  spite  of  the  very 
high  esteem  which  it  pays  to  their  talents,  and  how  many  unscrupulous  speculators 
has  it  rewarded  for  their  adroitness  by  hundreds  of  thousands,  although  it 


378  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

aristocratic  that  its  psychological  laws  force  our  spirit  to 
reckon  the  trouble  of  a  skilled  artist  a  hundred  times  more 
valuable  than  the  more  modest  trouble  of  a  carpenter !  I 
think  that  any  one  who  reflects  for  a  little,  instead  of  blindly 
taking  it  on  trust,  will  be  convinced  that  there  is  no 
immediately  obvious  and  essential  connection  between  trouble 
and  value,  such  as  the  passage  in  Adam  Smith  seems  to 
assume. 

But  does  the  passage  actually  refer  to  exchange  value,  as 
has  been  tacitly  assumed  ?  I  do  not  think  that  any  one  who 
reads  it  with  unprejudiced  eye  can  maintain  that  either.  The 
passage  applies  neither  to  exchange  value,  nor  to  use  value, 
nor  to  any  other  kind  of  value  in  the  strict  scientific  sense. 
The  fact  is — as  shown  by  the  employment  of  the  expression 
"  worth  "  instead  of  value — that  in  this  case  Adam  Smith  has 
used  the  word  in  that  very  wide  and  vague  sense  which  it 
has  in  everyday  speech.  And  this  is  very  significant.  Feel- 
ing involuntarily  that,  at  the  bar  of  strictly  scientific  reflection, 
his  proposition  could  not  be  admitted,  he  turns  to  the  loose 
impressions  of  everyday  life,  and  makes  use  of  the  ill-defined 
expressions  of  everyday  life, — with  a  result,  as  experience  has 
shown,  very  much  to  be  deplored  in  the  interests  of  the  science. 

Finally,  how  little  the  whole  passage  can  lay  claim  to 
scientific  exactitude  is  shown  by  the  fact  that,  even  in  the  few 
words  that  compose  it,  there  is  a  contradiction.  In  one  breath 
he  claims  for  two  things  the  distinctive  property  of  being 
the  principle  of  "  real "  value :  first,  for  the  trouble  that  a  man 
can  save  himself  through  the  possession  of  a  good ;  second,  for 
the  trouble  that  a  man  can  impose  upon  other  people.  But 
these  are  two  quantities  which,  as  every  one  knows,  are  not 
absolutely  identical.  Under  the  regime  of  the  division  of 
labour,  the  trouble  which  I  personally  would  be  obliged  to 
undergo  to  obtain  possession  of  a  thing  I  desired  is  usually 
much  greater  than  the  trouble  with  which  a  labourer  technically 
trained  produces  it.  Which  of  these  two  troubles,  the  "  saved  " 

has  no  esteem  whatever  for  their  "talents"!  But  suppose  esteem  were  the 
foundation  of  value,  in  that  case  the  law  that  value  depends  on  trouble  would 
evidently  not  be  confirmed  but  violated.  If,  again,  in  the  second  of  the  above 
sentences,  Adam  Smith  attempts  to  trace  that  higher  value  to  the  trouble  ex- 
pended in  acquiring  the  dexterity,  by  his  insertion  of  the  word  "frequently  "  he 
confesses  that  it  will  not  hold  in  all  cases.  The  contradiction  therefore  remains. 


CHAP,  in  VALUE  AND   TROUBLE  379 

or  the  "imposed,"  are  we  to  understand  as  determining  the 
real  value  ? 

In  short,  the  celebrated  passage  where  our  old  master 
Adam  Smith  introduces  the  Labour  Principle  into  the  theory 
of  value  is  as  far  as  possible  from  being  the  great  and  well 
grounded  scientific  principle  it  has  usually  been  considered. 
It  does  not  of  itself  carry  conviction.  It  is  not  supported 
by  a  particle  of  evidence.  It  has  the  slovenly  dress  and  the 
slovenly  character  of  a  popular  expression.  Finally,  it  con- 
tradicts itself.  That,  notwithstanding  this,  it  found  general 
acceptance  is  due,  in  my  opinion,  to  the  coincidence  of  two 
circumstances ;  first,  that  an  Adam  Smith  said  it,  and,  second, 
that  he  said  it  without  adducing  any  evidence  for  it.  If  Adam 
Smith  had  but  addressed  a  single  word  in  its  proof  to  the 
intelligence  of  his  readers,  instead  of  simply  appealing  to  their 
immediate  impressions,  they  would  have  insisted  upon  putting 
the  evidence  before  the  bar  of  their  intelligence,  and  then  the 
absence  of  all  real  argument  would  infallibly  have  shown 
itself.  It  is  only  by  taking  people  by  surprise  that  such 
propositions  can  win  acceptance. 

Let  us  see  what  Adam  Smith,  and  after  him,  Kicardo,  says 
further.  "  Labour  was  the  first  price — the  original  purchase 
money  that  was  paid  for  all  things."  This  proposition  is 
comparatively  inoffensive,  but  it  has  no  bearing  on  the 
principle  of  value. 

"  In  that  early  and  rude  state  of  society  which  precedes 
both  the  accumulation  of  stock  and  the  appropriation  of  land, 
the  proportion  between  the  quantities  of  labour  necessary  for 
acquiring  different  objects  seems  to  be  the  only  circumstance 
which  can  afford  any  rule  for  exchanging  them  for  one  another. 
If,  among  a  nation  of  hunters,  for  example,  it  usually  cost 
twice  the  labour  to  kill  a  beaver  which  it  does  to  kill  a  deer, 
one  beaver  should  naturally  exchange  for  or  be  worth  two 
deer.  It  is  natural  that  what  is  usually  the  produce  of  two 
days'  or  two  hours'  labour  should  be  worth  double  of  what  is 
usually  the  produce  of  one  day's  or  one  hour's  labour." 

In  these  words  also  we  shall  look  in  vain  for  any  trace  of  a 
rational  basis  for  the  doctrine.  Adam  Smith  simply  says,  "seems 
to  be  the  only  circumstance,"  "  should  naturally,"  "  it  is  natural," 
and  so  on,  but  throughout  he  leaves  it  to  the  reader  to  convince 


380  MARX 'S  EXPLOITA  TION  THEOR  Y  BOOK  vi 

himself  of  the  "  naturalness  "  of  such  judgments — a  task,  be  it 
remarked  in  passing,  that  the  critical  reader  will  not  find  easy. 
For  if  it  is  "  natural "  that  the  exchange  of  products  should 
be  regulated  exclusively  by  the  proportion  of  labour  time  that 
their  attainment  costs,  it  must  also  be  natural  that,  for  instance, 
any  uncommon  species  of  butterfly,  or  any  rare  edible  frog, 
should  be  worth,  "  among  a  nation  of  hunters  "  ten  times  more 
than  a  deer,  inasmuch  as  a  man  might  spend  ten  days  in 
looking  for  the  former,  while  he  could  capture  the  latter 
usually  by  one  day's  labour.  But  the  "  naturalness  "  of  this 
proportion  would  scarcely  be  obvious  to  everybody ! 

The  result  of  these  considerations  may,  I  think,  be  summed 
up  as  follows.  Adam  Smith  and  Ricardo  have  asserted  that 
labour  is  the  principle  of  the  value  of  goods  simply  as  an 
axiom,  and  without  giving  any  evidence  for  it.  Consequently 
any  one  who  would  maintain  this  principle  must  not  look 
to  Adam  Smith  and  Ricardo  as  guaranteeing  its  truth,  but 
must  seek  for  some  other  and  independent  basis  of  proof. 

Now  it  is  a  very  remarkable  fact  that  of  later  writers 
scarcely  any  one  has  done  so.  The  men  who  in  other  respects 
sifted  the  old-fashioned  doctrine  inside  and  out  with  their 
destructive  criticism,  with  whom  no  proposition,  however  vener- 
able with  age,  was  secure  from  being  put  once  more  in  question 
and  tested,  these  very  men  have  not  uttered  a  word  in 
criticism  of  the  weightiest  principle  that  they  borrowed  from 
the  old  doctrine.  From  Ricardo  to  Rodbertus,  from  Sismondi 
to  Lassalle,  the  name  of  Adam  Smith  is  the  only  guarantee 
thought  necessary  for  this  doctrine.  No  writer  adds  anything 
of  his  own  but  repeated  asseverations  that  the  proposition  is 
true,  incontrovertible,  indubitable ;  there  is  no  real  attempt 
to  prove  its  truth,  to  meet  objections,  to  remove  doubts.  The 
despisers  of  proof  from  authority  content  themselves  with 
appealing  to  authority  ;  the  sworn  foes  of  unproved  assumptions 
and  assertions  content  themselves  with  assuming  and  asserting 

O  O 

Only  a  very  few  representatives  of  the  Labour  Value  theory  form 
any  exception  to  this  rule ;  one  of  these  few,  however,  is  Marx. 
An  economist  looking  for  a  real  confirmation  of  the  principle 
in  question  might  proceed  in  one  of  two  directions ;  he  might 
either  attempt  to  develop  the  proof  from  grounds  involved 
in  its  very  statement,  or  he  might  deduce  it  from  experience. 


CHAP,  in       THE  COMMON  ELEMENT  IN  EXCHANGE        381 

Marx  has  taken  the  former  course,  with  a  result  on  which  the 
reader  may  presently  form  his  own  opinion. 

I  have  already  quoted  in  Marx's  own  words  the  passages 
relative  to  the  subject.  The  line  of  argument  divides  itself 
clearly  into  three  steps. 

First  step.  Since  in  exchange  two  goods  are  made  equal 
to  one  another,  there  must  be  a  common  element  of  similar 
quantity  in  the  two.  and  in  this  common  element  must  reside 
the  principle  of  Exchange  value. 

Second  step.  This  common  element  cannot  be  the  Use 
value,  for  in  the  exchange  of  goods  the  use  value  is  disregarded. 

Third  step.  If  the  use  value  of  commodities  be  disregarded 
there  remains  in  them  only  one  common  property — that  of  being 
products  of  labour.  Consequently,  so  runs  the  conclusion, 
Labour  is  the  principle  of  value ;  or,  as  Marx  says,  the  use 
value,  or  "good,"  only  has  a  value  because  human  labour  is 
made  objective  in  it,  is  materialised  in  it. 

I  have  seldom  read  anytliing  to  equal  this  for  bad  reasoning 
and  carelessness  in  drawing  conclusions. 

The  first  step  may  pass,  but  the  second  step  can  only  be 
maintained  by  a  logical  fallacy  of  the  grossest  kind.  The  use 
value  cannot  be  the  common  element  because  it  is  "  obviously 
disregarded  in  the  exchange  relations  of  commodities,  for  " — I 
quote  literally — "  within  the  exchange  relations  one  use  value 
counts  for  just  as  much  as  any  other,  if  only  it  is  to  be  had 
in  the  proper  proportion."  What  would  Marx  have  said  to 
the  following  argument  ? 

In  an  opera  company  there  are  three  celebrated  singers — a 
tenor,  a  bass,  and  a  baritone — and  these  have  each  a  salary  of 
£1000.  The  question  is  asked,  What  is  the  common  circum- 
stance on  account  of  which  their  salaries  are  made  equal  ? 
And  I  answer,  In  the  question  of  salary  one  good  voice  counts 
for  just  as  much  as  any  other — a  good  tenor  for  as  much  as  a 
good  bass  or  a  good  baritone — provided  only  it  is  to  be  had  in 
proper  proportion ;  consequently  in  the  question  of  salary  the 
good  voice  is  evidently  disregarded,  and  the  good  voice  cannot 
be  the  cause  of  the  good  salary. 

The  fallaciousness  of  this  argument  is  clear.  But  it  is  just  as 
clear  that  Marx's  conclusion,  from  which  this  is  exactly  copied, 
is  not  a  whit  more  correct.  Both  commit  the  same  fallacy. 


382  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

They  confuse  the  disregarding  of  a  genus  with  the  disregarding 
of  the  specific  forms  in  which  this  genus  manifests  itself.  In 
our  illustration  the  circumstance  which  is  of  no  account  as 
regards  the  question  of  salary  is  evidently  only  the  special  form 
which  the  good  voice  assumes,  whether  tenor,  bass,  or  baritone. 
It  is  by  no  means  the  good  voice  in  general.  And  just  so  is  it 
with  the  exchange  relations  of  commodities.  The  special  forms 
under  which  use  value  may  appear,  whether  the  use  be  for  food, 
clothing,  shelter,  or  any  other  thing,  is  of  course  disregarded  ; 
but  the  use  value  of  the  commodity  in  general  is  never  dis- 
regarded. Marx  might  have  seen  that  we  do  not  absolutely 
disregard  use  value  from  the  fact  that  there  can  be  no  exchange 
value  where  there  is  not  a  use  value — a  fact  which  Marx 
himself  is  repeatedly  forced  to  admit1 

But  still  worse  fallacies  are  involved  in  the  third  step  of 
the  demonstration.  If  the  use  value  of  commodities  is  dis- 
regarded, says  Marx,  there  remains  in  them  only  one  common 
property — that  of  being  products  of  labour.  Is  this  true  ?  Is 
there  only  one  property  ?  In  goods  that  have  exchange  value, 
for  instance,  is  there  not  also  the  property  of  being  scarce  in 
proportion  to  the  demand  ?  Or  that  they  are  objects  of  demand 
and  supply  ?  Or  that  they  are  appropriated  ?  Or  that  they  are 
natural  products?  For  that  they  are  products  of  nature  just 
as  they  are  products  of  labour  no  one  declares  more  plainly 
than  Marx  himself,  when  in  one  place  he  says,  "  Commodities 
are  combinations  of  two  elements,  natural  material  and  labour  ; " 
or  when  he  incidentally  quotes  Petty's  expression  about  material 
wealth,  "  Labour  is  its  father  and  the  earth  its  mother."  '2 

Now  why,  I  ask,  may  not  the  principle  of  value  reside  in 
any  one  of  these  common  properties,  as  well  as  in  the  property 
of  being  the  product  of  labour  ?  For  in  support  of  this  latter 
proposition  Marx  hasjiot  adduced  the  smallest  positive  argument. 
His  sole  argument  is  the  negative  one,  that  the  use  value,  thus 
happily  disregarded  and  out  of  the  way,  is  not  the  principle  of 
exchange  value.  But  does  not  this  negative  argument  apply 

1  For  instance,  in  p.  15  at  the  end  :  "  Finally,  nothing  can  be  valuable  without 
being  an  object  of  use.     If  it  is  useless  the  labour  contained  in  it  is  also  useless  ; 
it  does  not  count  as  labour  (sic),  and  therefore  confers  no  value."     Knies  has 
already  drawn  attention  to  the  logical  blunder  here  criticised  (Das  Geld,  Berlin, 
1873,  p.  123,  etc.) 

2  Das  Kapital,  p.  17  etc. 


CHAP.  HI       LABOUR  NOT  THE  COMMON  ELEMENT          383 

with  equal  force  to  all  the  other  common  properties  overlooked 
by  Marx  ?  Wantonness  in  assertion  and  carelessness  in  reason- 
ing cannot  go  much  farther. 

But  this  is  not  all     Is  it  even  true   that  in  all  goods 
possessing  exchange  value  there  is  this  common  property  of  \ 
being  the  product  of  labour  ?     Is  virgin  soil  a  product  of  labour  ?  I 
Or  a  gold  mine  ?     Or  a  natural  seam  of  coal  ?     And  yet,  as  ' 
every  one  knows,  these  often  have  a  very  high  exchange  value. 
But  how  can  an  element  that  does  not  enter  at  all  into  one  class 
of  goods   possessing  exchange  value  be  put    forward  .as  the 
common  universal  principle  of  exchange  value  ?     How  Marx 
would  have  lashed  any  of  his  opponents  who  had  been  guilty 
of  such  logic  ! l 

Without  doing  Marx  any  wrong  then  we  shall  here  take  the 
liberty  of  saying  that  his  attempt  to  prove  the  truth  of  his 
principle  deductively  has  completely  fallen  through. 

If  the  proposition  that  the  value  of  all  goods  rests  on  labour 
is  neither  an  axiom  nor  capably  of  proof  by  deduction,  there 
still  remains  at  least  one  possibility  in  its  favour  ;  it  may  be 
capable  of  demonstration  by  experience.  To  give  Marx  every 
chance  we  shall  look  at  this  possibility  also.  What  is  the 
testimony  of  experience  ? 

Experience  shows  that  the  exchange  value  of  goods  stands 
in  proportion  to  that  amount  of  labour  which  their  production 
costs  only  in  the  case  of  one  class  of  goods,  and  even  then  only 
approximately.  Well  known  as  this  should  be,  considering  that 
the  facts  on  which  it  rests  are  so  familiar,  it  is  very  seldom 
estimated  at  its  proper  value.  Of  course  everybody,  including 
the  socialist  writers,  agrees  that  experience  does  not  entirely  con- 
firm the  Labour  Principle.  It  is  commonly  imagined,  however, 
that  the  cases  in  which  actual  facts  confirm  the  labour  principle 
form  the  rule,  and  that  the  cases  which  contradict  the  principle 
form  a  relatively  insignificant  exception.  This  view  is  very 
erroneous,  and  to  correct  it  once  and  for  all  I  shall  put  to- 
gether in  groups  the  exceptions  by  which  experience  proves  the 
labour  principle  to  be  limited  in  economic  life.  We  shall  see 
that  the  exceptions  so  much  preponderate  that  they  scarcely 
leave  any  room  for  the  rule. 

1.  From  the  scope  .of  the  Labour  Principle  are  excepted 

1  See  also  on  the  subject  Knies,  Das  Geld,  p.  121. 


384  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

all  "  scarce  "  goods  that,  from  actual  or  legal  hindrances,  cannot 
be  reproduced  at  all,  or  can  be  reproduced  only  in  limited 
amount.  Ricardo  names,  by  way  of  example,  rare  statues  and 
pictures,  scarce  books  and  coins,  wines  of  a  peculiar  quality, 
and  adds  the  remark  that  such  goods  form  only  a  very  small 
proportion  of  the  goods  daily  exchanged  in  the  market. 
If,  however,  we  consider  that  to  this  category  belongs  the 
whole  of  the  land,  and,  further,  those  numerous  goods  in  the 
production  of  which  patents,  copyright,  and  trade  secrets  come 
into  play,  it  will  be  found  that  the  extent  of  these  "  exceptions  " 
is  by  no  means  inconsiderable.1 

2.  All  goods  that  are  produced  not  by  common,  but  by 
skilled  labour,  form  an  exception.  Although  in  the  day's  pro- 
duct of  a  sculptor,  a  skilled  joiner,  a  violin-maker,  an  engineer, 
and  so  on,  no  more  labour  be  incorporated  than  in  the  day's 
product  of  a  common  labourer  or  a  factory  operative,  the  former 
has  a  greater  exchange  value,  and  often  a  many  times  greater 
exchange  value.  The  adherents  of  the  labour  value  theory 
have  of  course  not  been  able  to  overlook  this  exception.  Some- 
times they  mention  it,  but  in  such  a  way  as  to  suggest  that  it 
does  not  form  a  real  exception,  but  only  a  little  variation  that 
yet  comes  under  the  rule.  Marx,  for  instance,  adopts  the  ex- 
pedient of  reckoning  skilled  labour  as  a  multiplex  of  common 
labour.  "Complicated  labour,"  he  says  (p.  19),  "counts  only 
as  strengthened,  or  rather  multiplied,  simple  labour,  so  that  a 
smaller  quantity  of  complicated  labour  is  equal  to  a  greater 
quantity  of  simple  labour.  Experience  shows  that  this  reduc- 
tion is  constantly  made.  A  commodity  may  be  the  product 
of  the  most  complicated  labour;  its  value  makes  it  equal  to 
the  product  of  simple  labour,  and  represents  therefore  only  a 
definite  quantity  of  simple  labour." 

The  naivety  of  this  theoretical  juggle  is  almost  stupefying. 
That  a  day's  labour  of  a  sculptor  may  be  considered  equal  to 
five  days'  labour  of  a  miner  in  many  respects — for  instance,  in 
money  valuation — there  can  be  no  doubt.  But  that  twelve 
hours'  labour  of  a  sculptor  actually  are  sixty  hours'  common 
labour  no  one  will  maintain.  Now  in  questions  of  theory — for 
instance,  in  the  question  of  the  principle  of  value — it  is  not  a 
matter  of  what  fictions  men  may  set  up,  but  of  what  actually  is. 

1  See  also  Knies,  Kredit,  part  ii.  p.  61. 


CHAP,  in      EXCEPTIONS  TO  LABOUR  PRINCIPLE  385 

For  theory  the  day's  production  of  the  sculptor  is,  and  remains, 
the  product  of  one  day's  labour,  and  if  a  good  which  is  the  pro- 
duct of  one  day's  labour  is  worth  as  much  as  another  which  is 
the  product  of  five  days'  labour,  men  may  invent  what  fictions 
they  please ;  there  is  here  an  exception  from  the  rule  asserted, 
that  the  exchange  value  of  goods  is  regulated  by  the  amount  of 
human  labour  incorporated  in  them.  Suppose  that  a  railway 
generally  graduates  its  tariff  according  to  the  distances  travelled 
by  persons  and  goods,  but,  as  regards  one  part  of  the  line  in  which 
the  working  expenses  are  peculiarly  heavy,  arranges  that  each 
mile  shall  count  as  two,  can  it  be  maintained  that  the  length 
of  the  distances  is  really  the  exclusive  principle  in  fixing  the 
railway  tariff  ?  Certainly  not ;  by  a  fiction  it  is  assumed  to 
be  so,  but  in  truth  the  application  of  that  principle  is  limited 
by  another  consideration,  the  character  of  the  distances. 
Similarly  we  cannot  preserve  the  theoretical  unity  of  the 
labour  principle  by  any  such  fiction. 

Not  to  carry  the  matter  further,  I  may  say  that  this  second 
exception  embraces  a  considerable  proportion  of  all  bought  and 
sold  goods.  In  one  respect,  strictly  speaking,  we  might  say 
that  almost  all  goods  belong  to  it.  For  into  the  production  of 
almost  every  good  there  enters  some  skilled  labour — labour  of 
an  inventor,  of  a  manager,  of  a  pioneer,  or  some  such  labour — 
and  this  raises  the  value  of  the  good  a  little  above  the  level 
which  would  have  been  determined  if  the  quantity  of  labour 
had  been  the  only  consideration. 

3.  The  number  of  exceptions  is  increased  by  those  goods — 
not,  it  is  true,  a  very  important  class — that  are  produced  by 
abnormally  badly  paid  labour.  For  reasons  that  need  not  be 
discussed  here,  wages  remain  constantly  under  the  minimum  of 
subsistence  in  certain  branches  of  production ;  for  instance,  in 
certain  women's  industries,  such  as  sewing,  embroidering,  and 
knitting.  The  products  of  these  employments  have  thus  an 
abnormally  low  value.  There  is,  for  instance,  nothing  unusual 
in  the  product  of  three  days'  labour  on  the  part  of  a  white 
seam  worker  only  fetching  as  much  as  the  product  of  two 
days'  labour  on  the  part  of  a  factory  worker. 

All  the  exceptions  mentioned  hitherto  take  the  form  of 
exempting  certain  groups  of  goods  altogether  from  the  law  of 
labour  value,  and  therefore  tend  to  narrow  the  sphere-  of  that 

2  c 


386  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

law's  validity.  The  only  goods  then  left  to  the  action  of  the  law 
are  those  goods  which  can  be  produced  at  will,  without  any  limit- 
ations, and  which  at  the  same  time  require  nothing  but  un- 
skilled labour  for  their  production.  But  even  in  this  contracted 
sphere  the  law  of  labour  value  does  not  rule  absolutely.  There 
are  some  further  exceptions  that  go  a  great  way  to  break  down 
its  strictness. 

4.  A  fourth  exception  to  the  Labour  Principle  may  be  found 
in  the  familiar  and  universally  admitted  phenomenon  that  even 
those  goods,  in  which  exchange  value  entirely  corresponds  with 
the  labour  costs,  do   not  show  this   correspondence  at   every 
moment.     By  the  fluctuations  of  supply  and  demand  their  ex- 
change value  is  put  sometimes  above,  sometimes  below  the  level 
corresponding  to  the  amount  of  labour  incorporated  in  them. 
The  amount  of  labour  only  indicates  the  point  towards  which 
exchange  value  gravitates, — not  any  fixed  point  of  value.     This 
exception,  too,  the  socialist  adherents  of  the  labour  principle 
seem  to  me  to  make  too  light  of.     They  mention  it  indeed,  but 
they  treat  it  as  a  little  transitory  irregularity,  the  existence  of 
which  does  not  interfere  with  the  great "  law  "  of  exchange  value. 
But  it  is  undeniable  that  these  irregularities  are  just  so  many 
cases  where  exchange  value  is  regulated  by  other  determinants 
than  the  amount  of  labour  costs.     They  might  at  all  events 
have  suggested  the  inquiry  whether  there  is  not  perhaps  a  more 
universal  principle  of  exchange  value,  to  which  might  be  trace- 
able, not  only  the  regular  formations  of  value,  but  also  those 
formations  which,  from  the  standpoint  of  the  labour  theory, 
appear  to  be  "  irregular."     But  we  should  look  in  vain  for  any 
such  inquiry  among  the  theorists  of  this  school. 

5.  Apart  from  these  momentary  fluctuations,  it  is  clear 
that  in  the  following  case  the  exchange  value  of  goods  con- 
stantly diverges,  and   that  not  inconsiderably,  from  the  level 
indicated  by  the  quantity  of  labour  incorporated  in  them.     Of 
two  goods  which  cost  exactly  the  same  amount  of  social  average 
labour  to  produce,  that  one  maintains  a  higher  exchange  value 
the  production  of  which  requires  the  greater  advance  of  "  pre- 
vious "  labour.      Ricardo,  as  we  saw,  in  two   sections  of  the 
first  chapter  of  his  Principles,  has  spoken  in  detail  of  this  ex- 
ception from  the  labour  principle.     Eodbertus  and  Marx  ignore, 
without   expressly  denying   it;    indeed   they  could   not  very 


CHAP,  in  LABOUR  PRINCIPLE  ENTIRELY  INADEQUATE  387 

well  do  so ;  for  that  an  oak-tree  of  a  hundred  years  possesses 
a  higher  value  than  corresponds  to  the  half  minute's  labour 
required  in  planting  the  seed  is  too  well  known  to  be  success- 
fully disputed. 

To  sum  up.  The  asserted  "  law  "  that  the  value  of  goods 
is  regulated  by  the  amount  of  the  labour  incorporated  in  them, 
does  not  hold  at  all  in  the  case  of  a  very  considerable  proportion 
of  goods  ;  in  the  case  of  the  others,  does  not  hold  always,  and 
never  holds  exactly.  These  are  the  facts  of  experience  with 
which  the  value  theorists  have  to  reckon. 

What  conclusions  can  an  unprejudiced  theorist  draw  from 
such  facts  ?  Certainly  not  the  conclusion  that  the  origin  and 
measure  of  all  value  is  to  be  ascribed  exclusively  to  labour. 
Such  a  conclusion  would  be  very  like  deducing  the  law. 
All  electricity  is  caused  by  friction,  from  the  experience  that 
electricity  is  produced  in  many  ways,  and  is  very  often 
produced  by  friction. 

On  the  other  hand,  the  conclusion  might  very  well  be  drawn 
that  expenditure  of  labour  is  one  circumstance  which  exerts  a 
powerful  influence  on  the  value  of  many  goods;  always  re- 
membering that  labour  is  not  an  ultimate  cause — for  an 
ultimate  cause  must  be  common  to  all  the  phenomena  of 
value — but  a  particular  and  intermediate  cause.  It  would 
not  be  difficult  to  find  a  deductive  proof  of  such  an  influence, 
though  no  deductive  proof  could  be  given  of  the  more 
thoroughgoing  principle.  And,  further,  it  may  be  very  inter- 
esting and  very  important  accurately  to  trace  the  influence  of 
labour  on  the  value  of  goods,  and  to  express  the  results  in  the 
form  of  laws.  Only  in  doing  so  we  must  keep  before  us  the 
fact  that  these  will  be  only  particular  laws  of  value  not 
affecting  the  universal  nature  of  value.  To  use  a  comparison. 
The  law  that  formulates  the  influence  of  labour  on  the 
exchange  value  of  goods  will  stand  to  the  universal  law  of 
value  in  the  same  relation  as  the  law,  The  west  wind  brings 
rain,  stands  to  a  universal  theory  of  rain.  West  wind  is  a 
very  general  intermediate  cause  of  rain,  just  as  expenditure  of 
labour  is  a  very  general  intermediate  cause  of  value ;  but  the 
ultimate  cause  of  rain  is  as  little  the  west  wind  as  that  of 
value  is  the  expended  labour. 

Ricardo    himself  only   went  a   very   little  way  over   the 


388  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

proper  limits.  As  I  have  shown,  he  knew  right  well  that  his 
law  of  value  was  only  a  particular  law ;  he  knew,  for  instance, 
that  the  value  of  scarce  goods  rests  on  quite  another  principle. 
He  only  erred  in  so  far  as  he  very  much  over-estimated  the 
extent  to  which  his  law  is  valid,  and  practically  ascribed  to  it  a 
validity  almost  universal.  The  consequence  is  that,  later  on,  he 
forgot  almost  entirely  the  little  exceptions  he  had  rightly  made 
but  too  little  considered  at  the  beginning  of  his  work,  and  often 
spoke  of  his  law  as  if  it  were  really  a  universal  law  of  value. 

It  was  his  shortsighted  followers  who  first  fell  into  the 
scarcely  conceivable  blunder  of  deliberately  and  absolutely 
representing  labour  as  the  universal  principle  of  value.  I  say, 
the  scarcely  conceivable  blunder,  for  really  it  is  not  easy  to 
understand  how  men  trained  in  theoretical  research  could, 
after  mature  consideration,  maintain  a  principle  for  which  they 
could  find  such  slight  support.  They  could  find  no  argument 
for  it  in  the  nature  of  things,  for  that  shows  no  necessary 
connection  whatever  between  value  and  labour;  nor  in  ex- 
perience, for  experience  shows,  on  the  contrary,  that  value  for 
the  most  part  does  not  correspond  with  labour  expended ;  nor, 
finally,  even  in  authority,  for  the  authorities  appealed  to  had 
never  maintained  the  principle  with  that  pretentious  univer- 
sality now  given  it. 

And  this  principle,  entirely  unfounded  as  it  is,  the 
socialist  adherents  of  the  Exploitation  theory  do  not  maintain 
as  something  unessential,  as  some  innocent  bit  of  system 
building ;  they  put  it  in  the  forefront  of  practical  claims  of 
the  most  aggressive  description.  They  maintain  the  law  that 
the  value  of  all  commodities  rests  on  the  labour  time  in- 
corporated in  them,  in  order  that  the  next  moment  they  may 
attack,  as  "  opposed  to  law,"  "  unnatural,"  and  "  unjust,"  all 
formations  of  value  that  do  not  harmonise  with  this  "  law," — 
such  as  the  difference  in  value  that  falls  as  surplus  to  the 
capitalist — and  demand  their  abolition.  Thus  they  first 
ignore  the  exceptions  in  order  to  proclaim  their  law  of  value 
as  universal.  And,  after  thus  assuming  its  universality,  they 
again  draw  attention  to  the  exceptions  in  order  to  brand  them 
as  offences  against  the  law.  This  kind  of  arguing  is  very 
much  as  if  one  were  to  assume  that  there  are  many  foolish 
people  in  the  world,  and  to  ignore  that  there  are  also  many 


CHAP,  in        REPEATS  RODBERTUS'S  MISTAKES 

wise  ones ;  and  thus  coming  to  the  "  universally  valid  law  " 
that  "  all  men  are  foolish,"  should  demand  the  extirpation  of 
the  wise  on  the  ground  that  their  existence  is  obviously 
"  contrary  to  law  "  ! 

I  have  criticised  the  law  of  Labour  Value  with  all  the 
severity  that  a  doctrine  so  utterly  false  seemed  to  me  to 
deserve.  It  may  be  that  my  criticism  also  is  open  to  many 
objections.  But  one  thing  at  any  rate  seems  to  me  certain : 
earnest  writers  concerned  to  find  out  the  truth  will  not  in 
future  venture  to  content  themselves  with  asserting  the  law  of 
labour  value  as  has  been  hitherto  done. 

lu  future  any  one  who  thinks  that  he  can  maintain  this  law 
will  first  of  all  be  obliged  to  supply  what  his  predecessors  have 
omitted — a  proof  that  can  be  taken  seriously.  Not  quotations 
from  authorities  ;  not  protesting  and  dogmatising  phrases ;  but 
a  proof  that  earnestly  and  conscientiously  goes  into  the  essence 
of  the  matter.  On  such  a  basis  no  one  will  be  more  ready 
and  willing  to  continue  the  discussion  than  myself. 

To  return  to  Marx.  Sharing  in  Ivodbertus's  mistaken 
idea  that  the  value  of  all  goods  rests  on  labour,  he  falls  later 
on  into  almost  all  the  mistakes  of  which  I  have  accused 
Rodbertus.  Shut  up  in  his  labour  theory  Marx,  too,  fails  to 
grasp  the  idea  that  Time  also  has  an  influence  on  value.  On 
one  occasion  he  says  expressly  that,  as  regards  the  value  of  a 
commodity,  it  is  all  the  same  whether  a  part  of  the  labour  of 
making  it  be  expended  at  a  much  earlier  point  of  time  or  not.1 
Consequently  he  does  not  observe  that  there  is  all  the  differ- 
ence in  the  world  whether  the  labourer  receives  the  final 
value  of  the  product  at  the  end  of  the  whole  process  of 
production,  or  receives  it  a  couple  of  months  or  years  earlier ; 
and  he  repeats  Eodbertus's  mistake  of  claiming  now,  in  the 
name  of  justice,  the  value  of  the  finished  product  as  it  will  be 
tlun. 

Another  point  to  be  noted  is  that,  in  business  capital, 
Marx  distinguishes  two  portions ;  of  which  one,  in  his  pecu- 
liar terminology  called  Variable  capital,  is  advanced  for  the 
wages  of  labour;  the  other,  which  he  calls  Constant  capital, 
is  advanced  for  the  means  of  production.  And  Marx 

1  P.  17.'. 


390  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

maintains  that  only  the  amount  of  the  variable  capital  has  any 
influence  on  the  quantity  of  surplus  value  obtainable,1  the 
amount  of  the  constant  capital  being  in  this  respect  of  no 
account.2  But  in  this  Marx,  like  Rodbertus  before  him,  falls 
into  contradiction  with  facts ;  for  facts  show,  on  the  contrary, 
that,  under  the  working  of  the  law  of  assimilation  of  profits, 
the  amount  of  surplus  value  obtained  stands,  over  the  whole 
field,  in  direct  proportion  to  the  amount  of  the  total  capital- 
variable  and  constant  together — that  has  been  expended.  It  is 
singular  that  Marx  himself  became  aware  of  the  fact  that  there 
was  a  contradiction  here,3  and  found  it  necessary  for  the  sake 
of  his  solution  to  promise  to  deal  with  it  later  on.4  But  the 
promise  was  never  kept,  and  indeed  could  not  be  kept. 

Finally,  Marx's  theory,  taken  as  a  whole,  was  as  powerless 
as  Rodbertus's  to  give  an  answer  even  approximately  satis- 
factory to  one  important  part  of  the  interest  phenomena. 
At  what  hour  of  the  labour  day  does  the  labourer  begin  to 
create  the  surplus  value  that  the  wine  obtains,  say  between 
the  fifth  and  the  tenth  year  of  its  lying  in  the  cellar  ?  Or  is 
it,  seriously  speaking,  nothing  but  robbery — nothing  but  the 
exploitation  of  unpaid  labour — when  the  worker  who  sticks 
the  acorn  in  the  ground  is  not  paid  the  full  £20  that  the  oak 
will  be  worth  some  day  when,  without  further  labour  of  man, 
it  has  grown  into  a  tree  ? 

Perhaps  I  need  not  go  farther.  If  what  I  have  said  is 
true,  the  socialist  Exploitation  theory,  as  represented  by  its  two 
most  distinguished  adherents,  is  not  only  incorrect,  but,  in 
theoretical  value,  even  takes  one  of  the  lowest  places 
among  interest  theories.  However  serious  the  fallacies  we 
may  meet  among  the  representatives  of  some  of  the  other 
theories,  I  scarcely  think  that  anywhere  else  are  to  be  found 

1  "The  rate  of  surplus  value  and  the  value  of  labour  power  being  given,  the 
amounts  of  surplus  value  produced  are  in  direct  ratio  with  the  amounts  of 
variable  capital  advanced.  .  .  .  The  value  and  the  degree  of  exploitation  of  labour 
power  being  equal,  the  amounts  of  value  and  surplus  value  produced  by  various 
capitals  stand  in  direct  ratio  with  the  amounts  of  the  variable  constituent  of 
these  capitals  ;  that  is,  of  those  constituents  which  are  converted  into  living 
labour  power  "  (p.  311,  etc.) 

-  "  The  value  of  these  contributory  means  of  production  may  rise,  fall, 
ivmain  unchanged,  be  little  or  much,  it  remains  without  any  influence  whatever 
in  producing  surplus  value  "  (p.  312). 

3  Pp.  204,  312.  <  Pp.  312,  542  at  end. 


CHAP,  in  REASONS  FOR  ITS  POPULARITY  391 

together  so  great  a  number  of  the  worst  fallacies — wanton, 
unproved  assumption,  self-contradiction,  and  blindness  to  facts. 
The  socialists  are  able  critics,  but  exceedingly  weak  theorists. 
The  world  would  long  ago  have  come  to  this  conclusion  if  the 
opposite  party  had  chanced  to  have  had  in  its  service  a  pen  as 
keen  and  cutting  as  that  of  Lassalle  and  as  slashing  as  that  of 
Marx. 

That  in  spite  of  its  inherent  weakness  the  Exploitation 
theory  found,  and  still  finds,  so  much  credence,  is  due,  in  my 
opinion,  to  the  coincidence  of  two  circumstances.  The  first 
is  that  it  has  shifted  the  struggle  to  a  sphere  where  appeal 
is  usually  made  to  the  heart  as  well  as  to  the  head.  What 
we  wish  to  believe  we  readily  believe.  The  condition  of  the 
labouring  classes  is  indeed  most  pitiful ;  every  philanthropist 
must  wish  that  it  were  bettered.  Many  profits  do  in  fact 
flow  from  an  impure  spring ;  every  philanthropist  must  wish 
that  such  springs  were  dried  up.  In  considering  a  theory 
whose  conclusions  incline  to  raise  the  claims  of  the  poor,  and 
to  depress  the  claims  of  the  rich, — a  theory  which  agrees 
partly,  or  it  may  be  entirely,  with  the  wishes  of  his  heart, — 
many  a  one  will  be  prejudiced  in  its  favour  from  the  first,  and 
will  relax  a  great  deal  of  the  critical  severity  that,  in  other 
circumstances,  he  would  have  shown  in  examining  its  scientific 
basis.  And  it  need  scarcely  be  said  that  theories  such  as 
these  have  a  strong  attraction  for  the  masses.  Their  concern 
is  not  with  criticism ;  they  simply  follow  the  line  of  their  own 
wishes.  They  believe  in  the  Exploitation  theory  because  it  is 
agreeable  to  them,  and  although  it  is  false ;  and  they  would 
believe  in  it  even  if  its  theoretical  argument  were  much  worse 
than  it  is. 

A  second  circumstance  that  helped  to  spread  the  theory 
was  the  weakness  of  its  opponents.  So  long  as  the  scientific 
opposition  to  it  was  led  chiefly  by  men  who  adhered  to  the 
Abstinence  theory,  the  Productivity  theory,  or  the  Labour 
theory  of  a  Bastiat  or  M'Culloch,  a  Eoscher  or  Strasburger, 
the  battle  could  net  go  badly  for  the  socialists.  From  positions 
so  faultily  chosen  these  men  could  not  strike  at  the  real 
weaknesses  of  Socialism ;  it  was  not  too  difficult  to  repel  their 
lame  attacks,  and  to  follow  the  fighters  triumphantly  into  their 


392  MARX'S  EXPLOITATION  THEORY  BOOK  vi 

own  camp.  This  the  socialists  were  strong  enough  to  do,  with 
as  much  success  as  skill.  If  many  socialistic  writers  have 
won  an  abiding  place  in  the  history  of  economic  science,  it  is 
due  to  the  strength  and  cleverness  with  which  they  managed 
to  destroy  so  many  flourishing  and  deeply-rooted  erroneous 
doctrines.  This  is  the  service,  and  almost  the  only  service, 
which  Socialism  has  rendered  to  our  science.  To  put  truth  in 
the  place  of  error  was  beyond  the  power  of  the  Exploitation 
theorists — even  more  than  it  was  beyond  the  power  of  their 
much  abused  opponents. 


BOOK  VII 

MINOR    SYSTEMS 


CHAPTER   I 

THE    ECLECTICS 


THE  difficulties  which  the  interest  problem  presented  to  the 
science  of  political  economy  are  reflected,  perhaps,  nowhere 
more  significantly  than  in  the  fact,  that  most  economic  writers 
of  our  century  did  not  form  any  definite  opinion  on  the 


indefiniteness    took    a  different    shape    somewhere 
about   the   year    1830.      Before   that    date   those   who   were 
undecided—  and  at  that  time  there  were  many  such—  simply 
avoided  entering  on  the  interest  problem.     They  come  under. 
that    category    which   I   have    called    the    Colourless    school 
Later  on,  when  the  problem  had  become  a  common  subject  o 
scientific  discussion,  this  was  no  longer  possible.      Economist 
were  obliged  to  own  to  an  opinion,  and  those  w;ho  could   not 
come  to  a  decision  of  their  own  became  eclectics      Interest 
theories    were    put    forward    in    abundance.       Wnters    who 
neither  could  nor  would  make  one  for  themselves,  nor  decic 
exclusively  on  one  of  those  already  made,  would  choose  from 
two  or  three  or  more  heterogeneous  theories  the  parts  that 
suited   them,  and  weave   them   into  what   generally  proved 
rather    badly  connected  whole.      Or,  without  even   trying 
obtain  the  appearance  of  a  whole,  they  would  in  the   course 
of   their  writings  employ  sometimes  one,   sometimes  another 
theory,  as  suited  best  for  the  purposes  they  might  happe. 

have  in  view.  ,      , 

It  need  not  be  said  that  an  eclecticism  on  which  the 
cardinal  duty  of  the  theorist,  logical  consistency,  sat  so  lightly, 
does  not  indicate  any  very  high  degree  of  theoretical  excellence. 
Still  here  also,  as  with  the  Colourless  theorists,  among  many 


396  THE  ECLECTICS  BOOK  VH 

men  of  secondary  importauce  we  meet  with  a  few  writers  of 
the  first  rank.  Nor  is  this  to  be  wondered  at.  The  develop- 
ment of  the  theory  had  been  so  peculiar  that,  for  capable 
writers  especially,  the  temptation  to  become  eclectic  must  have 
been  almost  overpowering.  There  were  so  many  heterogeneous 
theories  in  existence  that  one  might  be  pardoned  for  thinking 
it  impossible  that  there  should  be  any  more.  A  critical 
mind,  indeed,  could  not  find  any  one  of  them  entirely  satis- 
factory. But  neither  could  the  fact  be  ignored  that  in  many 
of  them  there  was  at  least  a  kernel  of  truth.  The  Productivity 
theory  as  a  whole,  for  instance,  was  certainly  unsatisfactory, 
but  no  unprejudiced  person  could  help  feeling  that  the  exist- 
ence of  interest  must  have  something  to  do  with  the  greater 
return  obtained  by  capitalist  production,  or,  as  it  was  generally 
called,  the  productivity  of  capital.  Or,  granted  that  a  complete 
explanation  of  interest  was  not  to  be  found  in  the  "  abstinence 
of  the  capitalist,"  it  could  scarcely  be  denied  that  the  privation 
which  saving  usually  costs  is  not  a  thing  altogether  without 
influence  on  the  fact  and  on  the  amount  of  interest.  In  such 
circumstances  nothing  was  more  natural  than  that  economists 
should  try  to  piece  together  the  fragments  of  truth  from 
different  theories.  This  tendency  was  strengthened  by  the 
fact  that  the  social  and  political  question  of  interest,  as  well 
as  the  theoretical,  was  now  before  the  public ;  and  many  a 
writer,  in  his  eagerness  to  justify  the  existence  of  interest, 
preferred  to  give  up  the  unity  of  his  theory  rather  than  cease 
heaping  together  arguments  in  its  favour.  As  might  be 
expected,  the  fragments  of  truth  thus  collected  remained,  at 
the  hands  of  the  eclectics,  nothing  but  fragments,  their  rough 
edges  grating  against  each  other  and  stubbornly  resisting  all 
attempts  to  work  them  into  a  homogeneous  whole. 

There  are  many  ways  in  which  eclecticism  has  combined 
the  various  interest  theories.  The  greatest  preference  has  'been 
shown  towards  a  combination  of  those  two  theories  that  came 
nearest  the  truth,  the  Productivity  and  the  Abstinence  theory. 
Among  the  numerous  writers  who  follow  this  direction  Kossi 
deserves  to  be  mentioned  at  some  length ;  partly  because  his 
rendering  of  the  Productivity  theory  is  not  without  a  certain 
originality ;  partly  because  he  may  serve  as  a  type  of  the 
illogical  method  usual  among  the  eclectics. 


397 

In  his  Cours  d' Economic  Politiqi^  Rossi  makes  use  of  the 
Productivity  and  the  Abstinence  theories  alternately,  without 
making  any  attempt  to  weld  the  two  into  one  organic  theory 
On  the  whole,  on  those  occasions  when  he  makes  general 
mention  of  the  phenomenon  of  interest  and  its  origin,  he 
follows  the  Abstinence  theory ;  while  in  details,  particularly 
in  the  inquiry  as  to  the  rate  of  interest,  he  prefers  to  follow 
the  Productivity  theory.  To  prove  this  I  may  put  down  m 
the  order  of  their  statement  the  most  important  passages, 
without  taking  more  pains  than  the  author  has  done  to  make 
them  consistent  with  each 'other. 

In  the  traditionary  way  Rossi  recognises  capital  as  a  iactor 
in  production  by  the  side  of  labour  and  land.      In  return  for 
its  co-operation  it  requires  a  compensation— profit, 
question  why  this  is  so,  the  answer  is  given  provisionally  m  the 
mystic  words,  which  seem  to  point  rather  to  the  Productivity 
theory  "  on  the  same  grounds  and  by  the  same  title  as  labour 
(p  93)      More  definitely,  and  here  distinctly  according  to  the 
Abstinence  theory,  Rossi  expresses  himself  in  the  summary  to 
the  third  lecture  of  the  third  volume  :  "  The  capitalist  demands 
the  compensation  due  to  the  privation  which  he  imposes  on 
himself"  (iii  p  32).     In  the  course  of  the  following  lecture 
he  develops  this  idea  more  carefully.     First  of  all,  he  blames 
Malthus  for  putting  profit,  which  certainly  is  not  an  expense 
but  an  income  of  the  capitalist,  among  the  costs  of  production,- 
a  criticism,  however,  which  he  might  have  first  taken  to  him- 
self, since  in  the  sixth  lecture  of  the  first  volume  he  has  formally, 
and  in  the   most  explicit  manner,  enumerated   the   profit   of 
capital  among  the  costs  of  production.2      The  true  constituent 
of  cost  which  he  puts  in  the  place  of  profit  is,  "capitahsed 
savin«"    (I'dpargne  capitalize),  the   non-consumption  and  the 
productive  employment  of  goods  over  which  the  capitalist  has 
command.     Later  too  we  find  repeated  allusions   (e.g.  in.  pp. 
261,  291)  to  the  capitalist's  renunciation  of  enjoyment  as  a 
factor  in  the  origination  of  profit. 

If  up  to  this  point  Rossi  has  shown  himself  for  the  most 
part  an  Abstinence  theorist,  from  the  second  half  of  the  third 

1  Fourth  edition,  Paris,  1865. 

s  "The  costs   of  production  are  made  up  of    (1)   the  recompense  to  t 
workers  ;  (2)  the  profits  of  the  capitalist,"  etc.  (p.  93) 


398  THE  ECLECTICS  BOOK  vn 

volume  onwards  we  come  upon  expressions,  at  first  occasionally 
and  then  frequently,  which  show  that  Eossi  had  also  come 
under  the  influence  of  the  popular  Productivity  theory.  He 
begins  in  somewhat  vague  terms  by  bringing  profit  into  con- 
nection with  the  circumstance  that  "  capitals  contribute  to 
production"  (iii.  p.  258).  A  little  later  (p.  340)  he  says 
quite  distinctly,  "  Profit  is  the  compensation  due  to  productive 
power" — no  longer,  be  it  observed,  to  privation.  Finally,  the 
rate  of  interest  is  explained  at  great  length  by  the  pro- 
ductivity of  capital.  He  regards  it  as  "  natural "  that  the 
capitalist  should  receive  for  his  shafe  in  the  product  as  much 
as  his  capital  has  produced  in  it,  and  that  will  be  much  if  the 
productive  power  of  capital  is  great,  little  if  the  productive 
power  of  capital  is  little.  Thus  Kossi  arrives  at  the  law  that 
the  natural  height  of  profit  is  in  proportion  to  the  productive 
power  of  capital.  He  develops  this  law  first  in  the  case 
where  production  requires  capital  alone  in  its  operations,  the 
factor  labour  being  left  out  of  account  as  vanishingly  small  and 
only  the  use  value  of  the  product  being  taken  into  consideration. 
Under  these  assumptions  he  finds  it  evident  that  if,  for  instance, 
the  employment  of  a  spade  on  a  definite  piece  of  ground,  after 
replacing  the  capital  laid  out,  procures  twenty  bushels  of  grain 
as  profit,  the  employment  of  a  more  efficient  capital,  say  a 
plough,  on  the  same  piece  of  land,  after  fully  replacing  the 
capital,  will  bring  in  more  profit,  say  sixty  bushels,  "  because 
a  capital  of  greater  productive  power  has  been  employed." 
But  the  same  natural  principle  obtains  in  the  complicated 
relations  of  our  actual  economic  life.  There  also  it  is  "  natural  " 
that  the  capitalist  should  share  the  product  with  the  labourers 
in  the  ratio  of  the  productive  power  of  his  capital  to  the 
productive  power  of  the  labourers.  If,  in  a  production  that 
has  hitherto  employed  a  hundred  workers,  a  machine  is 
introduced  which  replaces  the  power  of  fifty  workers,  the 
capitalist  has  a  natural  claim  to  one-half  the  total  product,  or 
the  wage  of  fifty  labourers. 

This  natural  relation  is  only  disturbed  by  one  thing ;  that 
the  capitalist  plays  a  double  role.  Not  only  does  he  contribute 
his  capital  to  the  common  co-operation,  but  he  connects  with 
that  a  second  business,  the  buying  of  labour.  In  virtue  of  the 
former,  he  would  always  receive  the  natural  profit  that  corre- 


399 
CHAP.  I 

spends  to  the  productive  power  of  capital,  and  that  alone.    But 
in  buying  labour  sometimes  cheap,  sometimes  dear,  he  may 
either  increase  his  natural  profit  at  the  expense  of  the  natural 
waae  of  labour,  or  may  give  up  a  portion  of  his  profit  to  the 
advantaoe  of  the  labourers.     Thus  if  the  fifty  workers  displaced 
by  the  machine  compete  with  those  left  in  employment  and 
depress  the  wages  of  labour,  it  may  be  that  the  capitalist  buys 
the  labour  of  the  fifty  still  employed  for  a  less  share  of  the 
total  return  than  would  naturally  fall  to  them  according  to  the 
ratio  of   their  productive   power  to  the  productive   power  of 
capital     Say  that  he  buys  their  labour  for  40  per  cent  instead 
of  50'per  cent  of  the  total  product,  a  profit  of  10  per  cent  is 
added   to   the  natural  profit   on  capital.     But  this,  although 
usually  classed  with  profit  on  capital,  is  in  its  nature  entirely 
foreign  to  it,  and  should  be  looked  on  as  a  profit  made  by  the 
buying  of  labour.     It  is  not  the  natural  profit  on  capital,  but 
this  foreign  addition  that  causes  an  antagonism  between  capital 
and  labour,  and  it  is  only  in  the  case  of  this  addition  that  the 
principle  of  wages  falling  as  profits  increase  and  vice  versd  has 
any  validity.     The  natural  and  true  profit  on  capital  leaves 
wages  untouched,  and  depends  altogether  on  the  productive 
power  of  capital  (lecture  iii.  pp.  21,  22). 

After  all  that  has  been  said  in  former  chapters  en  the 
Productivity  theories,  we  may  well  dispense  with  any  thorough 
and  detailed  criticism  of  such  views.  I  shall  merely  point  out 
one  monstrous  conclusion  that  follows  logically  from  Rossi's 
theory.  According  to  him  all  the  surplus  returns  obtained  by 
the  introduction  and  improvement  of  machinery,  or  from  the 
development  of  capital  in  general,  must  to  all  eternity  wholly 
and  entirely  flow  into  the  pockets  of  the  capital,  without 
the  labourer  getting  any  share  whatever  in  the  advantages  of 
these  improvements ;  for  those  surplus  returns  are  due  to  the 
increased  productive  power  of  capital,  and  their  result  forms 
the  "  natural "  share  of  the  capitalist ! 1 

On   the   same  lines   as   Kossi,   and   contributing  nothing 
new,  we  meet  among  French  writers   Molinari 2  and  Leroy- 

i  See  also  the  sharp  but  most  pertinent  criticism  of  Pierstorff,  Lehre  vom 
Untemchmergeurinn,  p.  93,  etc. 

*  Covrs  d'Ecviomie  Politique,  second  edition,  Paris,  1863.  His  Productivity 
theory  is  similar  to  that  of  Say  (e.g.  "interest  is  a  compensation  for  the  productive 


400  THE  ECLECTICS  BOOK  vn 

Beaulieu,1  aud  among  Germans  Eoscher,  with  his  followers 
Schiiz  and  Max  Wirth.2 

Among  Italian  economists  who  follow  the  same  eclectic 
lines  may  be  mentioned  Cossa.  Unfortunately  this  admirable 
writer,  in  his  monograph  on  the  conception  of  capital,3  has  not 
extended  his  researches  to  the  question  of  interest,  and  we 
have  to  go  by  the  very  scanty  hints  that  occur  in  his  well- 
known  Elementi  di  Economia  Politico,*  From  it  one  would 
judge  Cossa  to  be  an  eclectic ;  yet  his  way  of  speaking,  as  if 
interpreting  the  ordinary  doctrines,  appears  to  me  evidently 
to  betray  that  he  has  some  critical  scruples  about  them.  Thus 
while  looking  on  interest  as  compensation  for  the  "  productive 
service"  of  capital  (p.  119),  he  refuses  to  recognise  this 
service  as  a  primary  factor  in  production,  and  only  allows  it 
the  place  of  a  secondary  or  derivative  instrument.6  Again, 
like  the  Abstinence  theorists,  he  puts  "  privations  "  among  the 
costs  of  production  (p.  65),  but  in  the  theory  of  interest  he 
adopts  a  tone  which  seems  to  imply  that  this  did  not  express 
his  own  conviction,  but  only  that  of  other  people.6 

The  most  interesting  of  those  eclectic  systems  that  combine 
the  Abstinence  and  the  Productivity  conceptions  I  consider  to 
be  that  of  Jevons,  with  which  I  shall  finish  consideration  of 
this  group.7 

service  of  capital,"  L  p.  302).  His  Abstinence  theory  (1,289,293,800)  is  par- 
ticularly unsatisfactory  on  account  of  the  peculiar  meaning  he  gives  to  the 
conception  of  "privation."  He  means  by  it  what  the  capitalist  may  suffer  on 
account  of  the  capital  sunk  in  production  not  being  available  for  the  satisfaction 
of  pressing  wants  which  may  possibly  arise  in  the  meantime.  Surely  a  very 
unsuitable  foundation  for  a  universal  theory  of  interest ! 

1  Essai  sur  la  Repartition  des  Richesses,  second  edition,   Paris,   1885.     See 
particularly  pp.  236  (Abstinence  theory),  233,  238  (Productivity  theory) ;  see  also 
above,  p.  131. 

2  On  Roscher,  see  above,  p.  129,  Schiiz,  Grundsatze  der  National-Ockonomie, 
Tubingen,  1843  ;  particularly  pp.  70,  285,  296,  etc.     Max  Wirth,  Grundziige  der 
National-Oekonomie,  third  edition,  i.  p.  324  ;  fifth  edition,  i.  327.     See  further 
Huhn,  Allgemeine   Volkswirthscfiaftslehre,  Leipzig,   1862,  p.  204  ;  H.  Bischof, 
Grundziige  eines  Systems  der  National-Oekonomik,   Graz,    1876,   p.    459,   and 
particularly  note  on   p.   465  ;   Schiilze  -  Delitzpch,   Kapitel  zu  einem  deutschen 
Arleiterkatechismus,  pp.  23,  27,  28,  etc. 

3  La  Nosione  del  Capitate,  in  the  Saggi  di  Econoniia  Politica,  Mailand,  1878, 
p.  155.  4  Sixth  edition,  1883. 

8  P.  34,  and  more  at  length  in  the  Saggi. 

6  "The  elements  of  interest  are  two:  first,  compensation  for  the  non-use  of 
capital,  or,  as  some  say,  for  its  formation,  and  for  its  productive  service  "  (p.  119). 

7  Theory  of  Political  Economy,  second  edition,  London,  1879. 


CHAP,  i  COSSA,  JEVONS  401 

Jevons  begins  by  giving  a  very  clear  statement  of  the 
economic  function  of  capital,  in  which  he  steers  clear  of  the 
mysticism  of  any  particular  "  productive  power."  The  function 
of  capital  he  finds  simply  in  this,  that  it  enables  us  to  expend 
labour  in  advance.  It  assists  men  to  surmount  the  difficulty 
caused  by  the  time  that  elapses  between  the  beginning  and  the 
end  of  a  work.  It  makes  possible  an  infinite  number  of  im- 
provements in  the  production  of  those  goods  the  manufacture  of 
which  necessarily  depends  upon  the  lengthening  of  the  interval 
between  the  moment  when  labour  is  exerted  and  the  moment 
when  the  work  is  finished.  All  such  improvements  are  limited 
by  the  use  of  capital,  and  in  making  these  improvements 
possible  lies  the  great  and  almost  the  only  use  of  capital.1 

This  being  the  foundation,  Jevons  explains  interest  as 
follows.  He  assumes  that  every  extension  of  time  between 
employment  of  labour  and  enjoyment  of  result  makes  it 
possible  to  obtain  a  greater  product  with  the  same  amount 
of  labour.  The  difference  between  the  product  that  would 
have  been  obtained  in  the  shorter  period,  and  the  greater 
product  that  may  be  obtained  when  the  time  is  extended, 
forms  the  profit  of  that  capital  by  the  investing  of  which  the 
lengthening  of  the  interval  has  been  made  possible.  If  we  call 
the  shorter  interval  t,  and  the  longer  interval  made  possible  by 
au  additional  investment  of  capital  t  +  A/,  and  further,  the  pro- 
duct obtainable  by  a  definite  quantity  of  labour  in  the  shorter 
interval  Yt,  then  by  hypothesis  the  product  obtainable  in 
the  longer  interval  will  be  correspondingly  greater;  that  is 
F(£  +  A/).  The  difference  of  these  two  quantities  F(<  +  A/) 

—  Yt  is  profit. 

To  ascertain  the  rate  of  interest  represented  by  this 
amount  of  prolit  we  must  calculate  the  profit  on  that  amount 
of  capital  by  which  the  extension  of  the  time  was  made 
possible.  If  Yt  is  the  invested  capital,  then  this  is  the 
amount  of  produce  that  could  have  been  obtained  on  the 
expiry  of  f,  without  any  additional  investment.  The  duration 
of  the  additional  investment  is  A*.  The  whole  amount  of  the 
additional  investment  is  therefore  represented  in  the  product 

=  (Yt .  AO-     Dividing  the  above  increment  of  produce  by  the 
latter  amount,  the  rule  of  interest  appears  thus — 


402  THE  ECLECTICS  BOOK  vn 

F(<  +  A/)  -  ¥t          1 
~~AT~          <~FD- 

The  more  abundantly  a  coun-try  is  supplied  with  capital, 
the  greater  is  the  product  F£  obtainable  without  any  new 
investment  of  capital ;  the  greater  also  is  the  capital  on  which 
the  profit  made  by  additional  extension  of  time  is  calculated, 
and  the  less  is  the  rate  of  interest  corresponding  to  that 
profit.  Hence  the  tendency  of  interest  to  fall  with  advancing 
prosperity.  Since,  further,  all  capitals  tend  to  receive  a 
similar  rate  of  interest,  they  must  all  be  content  to  take  that 
lowest  rate  obtained  by  the  additional  capital  last  invested. 
Thus  the  advantage  conferred  on  production  by  the  last 
addition  of  capital  determines  the  height  of  the  usual  rate 
of  interest  in  the  country. 

The  resemblance  of  this  line  of  thought  to  that  of  the 
German  Thiinen  is  obvious.  It  presents  the  same  weak 
points  to  criticism.  Like  Thiinen,  Jevons  too  lightly  identi- 
fies the  "  surplus  in  products  "  with  the  "  surplus  in  value." 
What  his  statement  seems  actually  to  point  to  is  an 
"  increment  of  produce "  due  to  the  assistance  of  the  last 
increment  of  capital.  But  that  this  surplus  in  produce 
indicates  at  the  same  time  a  surplus  in  value  over  the 
capital  consumed  in  the  investment,  Jevons  has  nowhere 
proved.  To  illustrate  by  a  concrete  case.  It  is  easy  to 
understand  that  a  man  employing  imperfect,  but  quickly 
made  machinery,  may  produce  in  a  year's  time  1000  pieces 
of  a  particular  class  of  goods,  and  by  employing  machinery 
which  is  more  perfect,  but  takes  longer  to  make,  may  produce 
in  the  same  time  1200  pieces  of  the  goods.  But  there 
is  nothing  here  to  show  that  the  difference  of  200  pieces 
must  be  a  net  surplus  in  value.  Two  things  might  prevent 
its  being  so.  (1)  It  might  be  that  the  more  perfect 
machinery  to  which  the  increment  of  200  pieces  is  due 
should  obtain  so  high  a  value  on  account  of  this  capability 
that  the  increment  of  200  pieces  is  absorbed  by  the  amount 
set  aside  for  depreciation.  (2)  It  is  conceivable  that  the  new 
method  of  production,  which  gives  these  good  results,  might 
be  employed  so  extensively  that  the  increased  supply  of  pro- 

1  P.  266.     Jevons  puts  the  same  formula  in  other  ways  that  need  not  be 
specified  here. 


CHAP.  I 


JEVONS  403 

ducts  would  press  down  the  value  of  the  present  1200  pieces 
to  the  same  level  as  the  former  1000  pieces.  In  neither 
case  would  there  be  any  surplus  value.  Jevons,  therefore, 
has  here  fallen  into  the  old  error  of  the  Productivity  theo- 
rists, and  mechanically  translated  the  surplus  in  products, 
which  everybody  would  grant,  into  a  surplus  in  value. 

Of  course  in  his  system  there  are  attempts  at  explanation 
of  this  difference  of  value.  But  he  has  not  brought  these 
attempts  into  connection  with  his  Productivity  theory ;  they 
do  not  complete  that  theory,  but  traverse  it. 

One  of  these  attempts  is  where  he  accepts  parts  of  the 
Abstinence  theory.  Jevons  quotes  Senior  with  approval ;  he 
explains  what  Senior  called  "abstinence"  as  that  "temporary 
sacrifice  of  enjoyment  that  is  essential  to  the  existence  of 
capital,"  or  as  the  capitalist's  "  endurance  of  want " ;  and  he 
gives  formula  for  calculating  the  amount  of  the  sacrifice  of 
abstinence  (p.  253,  etc.)  He  reckons  this  abstinence — some- 
times indeed,  writing  loosely,  he  reckons  even  interest — among 
the  costs  of  production ;  and  in  one  place  he  expressly  speaks 
of  the  capitalist's  income  as  "  compensation  for  abstinence  and 

risk"  (p.  295). 

Jevons  has  some  very  interesting  remarks  on  the  effect 
of  time  on  the  valuation  of  needs  and  satisfactions.  He 
points  out  that  we  anticipate  future  pleasures  and  pains,  the 
prospect  of  future  pleasure  being  already  felt  as  anticipated 
pleasure.  But  the  intensity  of  the  anticipated  pleasure  is 
always  less  than  that  of  the  future  pleasure  itself,  and  depends 
on  two  factors — the  intensity  of  the  pleasure  anticipated,  and 
the  time  that  intervenes  before  the  emergence  of  the  pleasure 
(p.  36,  etc.)  Somewhat  strangely  Jevons  holds  that  the 
distinction  we  thus  make  in  immediate  valuation  between  a 
present  and  a  future  enjoyment  is,  rightly  considered,  unjusti- 
fiable. It  rests  only,  he  says,  on  an  intellectual  error,  or 
an  error  of  natural  disposition ;  and,  properly  speaking,  time 
should  have  no  such  influence.  All  the  same,  on  account  of 
the  imperfection  of  human  nature,  it  is  a  fact  that  "  a  future 
feeling  is  always  less  influential  than  a  present  one"  (p.  "78). 

Now  Jevons  is  quite  correct  in  saying  that  this  power  of 
anticipation  must  exert  a  far-reaching  influence  in  economics, 
for,  among  other  things,  all  accumulation  of  capital  depends 


404  THE  ECLECTICS  BOOK  vn 

upon  it  (p.  37).  But,  unfortunately,  he  is  satisfied  with 
throwing  out  suggestions  of  the  most  general  description,  and 
applying  them  quite  fragmentarily.1  He  fails  to  develop  the 
idea,  or  to  give  it  any  fruitful  application  to  the  theory  of 
income  and  value.  This  omission  is  the  more  surprising  that 
there  are  some  features  in  his  interest  theory  which  strongly 
suggested  the  possibility  of  making  a  very  good  use  of  the 
element  of  time  in  the  explanation  of  interest.  With  more 
emphasis  than  any  one  before  him,  he  had  asserted  the  role 
played  by  time  in  the  function  of  capital.  The  next  step 
evidently  would  have  been  to  inquire  whether  the  difference 
of  time  might  not  also  exert  an  immediate  influence  on  the 
valuation  of  the  product  of  capital,  of  such  a  kind  that  the 
difference  of  value,  on  which  interest  is  founded,  might  be 
explained  by  it.  Instead  of  this  Jevons,  as  we  have  seen, 
persists  in  the  old  method  of  explaining  interest  simply  by  the 
difference  in  the  quantity  of  the  product. 

Still  more  obvious,  probably,  would  it  have  been  to  connect 
his  other  conception  of  "  abstinence  "  with  the  difference  that 
we  make  in  the  estimation  of  present  and  future  enjoyments, 
and  to  account  for  the  sacrifice  that  lies  in  the  postponement 
of  enjoyment  by  that  lesser  valuation  of  the  future  utility. 
But  Jevons  gives  no  positive  expression  to  this.  Indeed, 
indirectly,  he  even  excludes  it ;  for,  as  we  have  seen,  on  the 
one  hand  he  pronounces  the  lesser  valuation  to  be  a  simple 
error  caused  by  the  imperfection  of  our  nature,  and,  on  the 
other  hand,  he  pronounces  the  abstinence  to  be  a  real  and 
true  sacrifice,  viz.  the  continuance  in  the  (painful)  state  of 
need. 

Thus  there  is  no  reciprocal  fructification  between  the  many 
interesting  and  acute  ideas  that  Jevons  throws  out  regarding 
our  subject ;  and  Jevons  himself  remains  an  eclectic  of  genius 
perhaps,  but  still  an  eclectic. 

A  second  group  of  eclectics  add  on  ideas  taken  from  the 
Labour  theory  in  one  or  other  of  its  varieties.  First  may  be 

1  Thus,  on  one  occasion,  he  says  that,  under  the  influence  of  this  element  of 
time,  in  the  case  of  the  distribution  of  a  stock  of  goods  in  the  present  and  in  the 
future,  "  less  commodity  will  be  consigned  to  future  days  in  some  proportion  to 
the  intervening  time  "  (p.  79). 


CHAP,  i  JEVONS,  READ  405 

mentioned    Read,1   whose   work,   appearing  as  it    did  at   the 
period  when   English  economic  literature   on   the  subject   of 
interest  was  most   confused,   shows   a  peculiarly  inconsistent 
heaping    together    of   opinions.     He    begins    by    laying    the 
greatest   emphasis   on  the   independent   productive  power  of 
capital,  regarding  the  existence  of  which   power  he  has   no 
doubt.     "How  absurd,"  he  exclaims  on  one  occasion  (p.  83), 
"must   it   appear  to   contend   that  labour  produces   all,  and 
is  the  only  source  of  wealth,  as  if  capital  produced  nothing, 
and  was  not  a  real  and  distinct  source  of  wealth  also  ! '      And 
a  little  farther  on  he  finishes  an  exposition  of  what  capital 
does  in  certain  branches  of  production  by  saying,  quite  in  the 
spirit  of  the  Productivity  theory,  that  everything  remaining 
over,  after  payment  of  the  workers  who  co-operate  in  the  work, 
"  may  fairly  be  claimed  as  the  produce  and  reward  of  capital." 
Later  stall,  however,  he  sees  the  matter  in  an  essentially 
different  light.     He  now  puts  in  the  foreground  the  fact  that 
capital  itself  comes  into  existence  through  labour  and  saving, 
and  builds  on  that  an  explanation  of  interest,  half  in  the  spirit 
of  James  Mill's  Labour  theory,  &nd  half  in  that  of  Senior's 
Abstinence  theory.     "  The  person  who  has  laboured  before,  and 
not  consumed  but  saved  the  produce  of  his  labour,  and  which 
produce  is  now  applied  to  assist  another  labourer  in  the  work  of 
production,  is  entitled  to  his  profit  or  interest  (which  is  the 
reward  for  labour  that  is  past,  and  for  saving  and  preserving 
the  fruits  of  that  labour)  as  much  as  the  present  labourer  is 
entitled  to  his  wages,  which  is  the  reward  for  his  more  recent 
labour"  (p.  310).      That  eclectic  hesitation  of  this  kind  must 
result  in  all  sorts  of  contradictions  goes  without  saying.     Thus 
in  this  latter  passage  Bead  himself  resolves  capital  into  previous 
labour,  although  earlier  he  had  protested  against  this  in  the 
most  stubborn  way.2     Thus  too  he  explains  profit  to  be  wage 
for  previous  labour,  while  in  a  previous  passage 3  he  had  blamed 
M'Culloch  most  severely  for  effacing  the  distinction  between 
the  conception  of  profit  and  that  of  wage. 

With  Read  may  be  appropriately  classed  the  German  econo- 

1  An  Inquiry  into  the  Natural  Grounds  of  Bight  to  Vendible  Property  or  Wealth, 
Edinburgh,  1829. 

a  P.  131,  and  generally  all  through  the  argument  against  Godwin,  and  the 
anonymous  tract  "  Labour  Defended."  3  Note  to  p.  247. 


406  THE  ECLECTICS  BOOK  vn 

mist  Gerstner.  The  "  familiar  question  "  whether  capital  by 
itself,  and  independently  of  the  other  two  sources  of  goods, 
is  productive,  he  answers  in  the  affirmative.  He  believes 
that  the  part  played  in  the  production  of  the  total  product 
by  the  instrument  of  production  we  call  capital,  can  be 
determined  with  mathematical  exactitude,  and  without  more 
ado  looks  upon  this  share  as  the  "  rent  in  the  total  profit 
that  is  due  to  capital."  1  With  this  frank  and  concise  Pro- 
ductivity theory,  however,  Gerstner  combines  certain  points 
of  agreement  with  James  Mill's  Labour  theory;  as  when  (p. 
20)  he  defines  the  instruments  of  production  as  "a  kind  of 
anticipation  of  labour,"  and  on  that  basis  calls  "  the  rent  of 
capital  that  falls  to  the  instruments  of  production  the  supple- 
mentary wage  for  previously  performed  labour"  (p.  23).  But, 
like  Eead,  he  gives  no  thought  to  the  question  that  naturally 
suggests  itself,  whether  in  that  case  the  previously  performed 
labour  has  not  previously  received  its  wages  from  the  capital 
value  of  the  capital,  and  why,  over  and  above  that,  it  still  gets 
an  eternal  contribution  in  the  shape  of  interest. 

To  the  same  division  of  the  eclectics  belong  the  French 
economists  Cauwes 2  and  Joseph  Gamier. 

I  have  already  pointed  out 3  how  Cauwes,  with  some  reser- 
vation, shows  himself  an  adherent  of  Courcelle  Seneuil's  Labour 
theory.  But  at  the  same  time  he  puts  forward  a  number  of 
views  that  have  their  origin  in  the  Productivity  theory. 
Arguing  against  the  socialists  he  ascribes  to  capital  an  indepen- 
dent "  active  role  "  in  production  by  the  side  of  labour  (i.  p. 
235).  In  the  "productivity  of  capital"  he  finds  what 
determines  the  current  rate  of  loan  interest.4  Finally,  he 
derives  the  existence  of  "surplus  value  "  from  the  productivity  of 
capital  in  a  passage,  where  he  bases  the  explanation  of  interest 
on  the  fact  that  we  are  indebted  to  the  productive  employ- 
ment of  capital  for  a  "  certain  surplus  value."5 

1  Beitrag  zur  Lehre  vom  Kapital,  Erlangcn,  1857,  pp.  16,  22,  etc. 
•  Precis  d' Economic  Politique,  second  edition,  Paris,  1881. 
'  See  above,  p.  304. 

4  ' '  The  principle  then  is  that  the  rate  of  interest  is  a  direct  consequence  of 
the  productivity  of  capital"  (ii.  p.  110). 

5  "  We  saw  that  the  real  value  of  interest  depended  on  the  productive  em- 
ployment given  to  capital ;  since  a  certain  surplus  value  is  due  to  capital,  interest 
is  one  part  of  that  surplus  value  presumably  fixic  tiforfait  (without  consideration 


CHAP,  i  GARNIER,  MILL  407 

In  Joseph  Gamier l  we  find  the  elements  of  no  less  than 
three  different  theories  eclectically  combined.  The  basis  of  his 
views  is  Say's  Productivity  theory,  from  which  he  even  revived 
and  adopted  the  feature  long  ago  rejected  by  criticism ;  that  of 
reckoning  interest  among  the  costs  of  production.2  Then,  in 
imitation  of  Bastiat,  he  calls  the  "  privation  "  which  the  lender 
of  the  capital  suffers  through  the  alienation  of  it,  the  justi- 
fication of  interest.  Finally,  he  declares  that  interest  invites 
and  compensates  the  "  labour  of  saving." 3 

All  the  eclectics  hitherto  mentioned  combine  a  number  of 
theories  which,  if  they  do  not  agree  in  the  character  of  their 
arguments,  at  least  agree  in  the  practical  results  at  which 
these  arguments  arrive.  That  is  to  say,  they  combine  theories 
which  are  favourable  to  interest.  But,  strangely  enough,  there 
are  some  writers  who,  with  one  or  more  theories  favourable  to 
interest,  combine  elements  of  the  theory  hostile  to  it,  the 
Exploitation  theory. 

Thus  J.  G.  Hoffmann  lays  down  a  peculiar  theory  that,  on 
one  side,  is  favourable  to  interest,  and  explains  it  as  the 
remuneration  of  certain  labours  in  the  public  service  performed 
by  the  capitalists.4  But,  on  the  other  side,  he  distinctly 
rejects  the  Productivity  theory,  which  was  then  fashionable, 
speaking  of  it  as  a  delusion  to  think  "  that  in  the  dead 
mass  of  capital  or  land  there  dwell  forces  of  acquisition  "  (p. 
588);  and  in  blunt  terms  declares  that  in  taking  interest  the 
capitalist  takes  to  himself  the  fruit  of  other  people's  labour. 
"  Capital,"  he  says,  "  can  be  employed  for  the  promotion  of 
one's  own  labour,  or  for  the  promotion  of  other  people's.  In 
the  latter  case  a  hire  is  due  the  owner  for  it,  and  this  hire  can 
only  be  paid  from  the  fruit  of  labour.  This  hire,  this  interest, 
has  so  far  the  nature  of  land-rent  that,  like  it,  it  comes  to  the 
receiver  from  the  fruit  of  other  people's  labour"  (p.  576). 

Still  more  striking  is  the  combination  of  opposed  opinions 
in  J.  S.  Mill.  It  has  often  been  remarked  that  Mill  takes  a 

of  gain  or  loss)  which  the  lender  receives  for  the  service  rendered  by  him  "  (ii. 
p.  189). 

1  Traite  (f  Economic  Politique,  eighth  edition,  Paris,  1880. 

2  P.  47.  *  P.  522. 

4  Kleine  Schriften  staatswirthschaftlichen  Inhalts,  Berlin,  1843,  p.  566.     See 
above,  p.  312. 


408  THE  ECLECTICS  BOOK  vn 

middle  position  between  two  very  strongly  diverging  ten- 
dencies of  political  economy — the  so-culled  Manchester  school 
on  the  one  side,  and  Socialism  on  the  other.  It  is  easy  to 
understand  that  such  a  compromise  cannot,  as  a  rule,  be 
favourable  to  the  construction  of  a  complete  and  organic 
system — least  of  all  in  that  sphere  where  the  chief  struggle 
of  socialism  and  capitalism  is  being  fought  out,  the  theory  of 
interest.  The  fact  is  that  Mill's  theory  of  interest  has  got  into 
such  u  tangle  that  it  would  be  a  serious  wrong  to  this  distin- 
guished thinker  were  we  to  determine  his  scientific  position  in 
political  economy  by  this  very  unsuccessful  part  of  his  work. 

As  Mill  constructed  his  system  in  the  main  on  the 
economical  views  of  Eicardo,  he  adopted,  among  others,  the 
principle  that  labour  is  the  chief  source  of  all  value.  But 
this  principle  is  traversed  by  the  actual  existence  of  interest. 
Mill  consequently  modified  it  in  the  way  of  making  the  value 
of  goods  determined  by  their  costs  of  production,  instead  of  by 
labour  in  general.  Among  these  costs  of  production,  besides 
labour  which  constitutes  "  so  much  the  principal  element  as  to 
be  very  nearly  the  whole,"  he  finds  room  for  profit,  and  gives  it 
an  independent  position.  Profit  with  him  is  the  second  con- 
stant element  in  costs.1 

That  Mill  should  have  fallen  into  the  old  mistake  of  Mal- 
thus,  and  described  a  surplus  as  a  sacrifice,  is  all  the  more 
wonderful  that  in  English  political  economy  it  had  already 
been  criticised,  severely  and  forcibly,  both  by  Torrens  and 
Senior. 

But  whence  comes  profit  ?  Instead  of  one,  Mill  gives  three 
inconsistent  answers  to  this  question. 

In  these  the  Productivity  theory  has  the  smallest  share,  and 
it  is  only  in  isolated  passages,  and  with  all  manner  of  reser- 
vations, that  Mill  tends  in  this  direction.  First,  he  explains 
with  a  certain  hesitation  that  capital  is  the  third  independent 
factor  in  production.  Of  course  capital  itself  is  the  product  of 
labour;  its  efficiency  in  production  is  therefore  that  of  labour 
in  an  indirect  shape.  Nevertheless  he  finds  that  it  "  requires 
to  be  specified  separately."  2  In  no  less  involved  terms  does 
he  express  himself  on  the  kindred  question  whether  capital 

1  Principles,  book  iii.  chap.  iv.  §§  1,  4,  6  ;  chap.  vi.  §  1,  No.  8,  etc. 
8  Book  i.  chap.  vii.  §  1. 


CHAP,  i  /.   5.  MILL  409 

possesses  independent  productivity.  "  We  often  speak  of  the 
'  productive  powers  of  capital.'  This  expression  is  not  literally 
correct.  The  only  productive  powers  are  those  of  labour 
and  natural  agents ;  or  if  any  portion  of  capital  can  by  a 
stretch  of  language  be  said  to  have  a  productive  power  of  its 
own,  it  is  only  tools  and  machinery  which,  like  wind  and  water, 
may  be  said  to  co-operate  with  labour.  The  food  of  labourers 
and  the  materials  of  production  have  no  productive  power." l 
Thus  tools  are  really  productive,  while  raw  materials  are  not 
— a  distinction  as  startling  as  it  is  untenable. 

Much  more  decisive  is  his  profession  of  Senior's  Abstinence 
theory.  It  forms,  as  it  were,  Mill's  official  theory  on  interest. 
It  appears  explicitly  and  completely  in  the  chapter  devoted  to 
profit,  and  is  often  appealed  to  afterwards  in  the  course  of  the 
work.  "  As  the  wages  of  the  labourer  are  the  remuneration  of 
labour,"  says  Mill  in  the  fifteenth  chapter  of  the  second  book  of 
his  Principles,  "so  the  profits  of  the  capitalist  are  prqperly,  accord- 
ing to  Mr.  Senior's  well-chosen  expression,  the  remuneration  of 
abstinence.  They  are  what  he  gains  by  forbearing  to  con- 
sume his  capital  for  his  own  uses,  and  allowing  it  to  be  con- 
sumed by  productive  labourers  for  their  uses.  For  this 
forbearance  he  requires  a  recompense."  And  as  distinctly  in 
another  place  :  "  In  our  analysis  of  the  requisites  of  production 
we  found  that  there  is  another  necessary  element  in  it  besides 
labour.  There  is  also  capital;  and  this  being  the  result  of 
abstinence,  the  produce  or  its  value  must  be  sufficient  to 
remunerate  not  only  all  the  labour  required,  but  the  abstinence 
of  all  the  persons  by  whom  the  remuneration  of  the  different 
classes  of  labourers  was,  advanced.  The  return  for  abstinence 
is  profit."  2 

But  besides  this,  in  the  same  chapter,  under  the  heading 
of  profit,  Mill  brings  forward  yet  a  third  theory :  "  The  cause 
of  profit,"  he  says  in  the  fifth  paragraph,  "  is  that  labour  pro- 
duces more  than  is  required  for  its  support  The  reason  why 
agricultural  capital  yields  a  profit  is  because  human  beings 
can  grow  more  food  than  is  necessary  to  feed  them  while  it  is 
being  grown,  including  the  time  occupied  in  constructing  the 
tools,  and  making  all. other  needful  preparations;  from  which 
it  is  a  consequence  that  if  a  capitalist  undertakes  to  feed  the 

1  Book  v.  §  1.  »  Book  iii.  chap.  iv.  §  4. 


410  THE  ECLECTICS  BOOK  VH 

labourers  on  condition  of  receiving  the  produce,  he  has  some 
of  it  remaining  for  himself  after  replacing  his  advances.  To 
vary  the  form  of  the  theorem :  the  reason  why  capital  yields 
a  profit  is  because  food,  clothing,  materials,  and  tools  last 
longer  than  the  time  which  was  required  to  produce  them ; 
so  that  if  a  capitalist  supplies  a  party  of  labourers  with  these 
things,  on  condition  of  receiving  all  they  produce,  they  will, 
in  addition  to  reproducing  their  own  necessaries  and  instru- 
ments, have  a  portion  of  their  time  remaining  to  work  for  the 
capitalist."  Here  the  cause  of  profit  is  found,  not  in  a  pro- 
ductive power  of  capital,  nor  in  the  necessity  of  compensating 
the  capitalist's  abstinence  as  a  special  sacrifice,  but  simply  in 
this,  that  "labour  produces  more  than  is  required  for  its 
support " ;  that  "  the  workers  have  a  portion  of  their  time 
remaining  to  work  for  the  capitalist "  :  in  a  word,  profit  is 
explained  according  to  the  Exploitation  theory,  as  an  appro- 
priation by  the  capitalist  of  the  surplus  value  created  by 
labour. 

A  similar  middle  course,  on  the  boundary  line  between 
Capitalism  and  Socialism,  is  taken  by  the  German  Katheder 
Socialists.  The  result  in  this  case  also  is  not  seldom  an 
eclecticism,  but  it  is  an  eclecticism  which  ends  more  in  agree- 
ment with  the  Exploitation  theory  than  was  the  case  with 
MilL  I  shall  only  mention  here  the  Katheder  Socialist  whom 
we  have  already  met  repeatedly  in  the  course  of  this  work, 
Schaffle. 

In  those  writings  of  Schaffle  where  he  treats  of  our 
subject  three  clear  and  distinct  currents  of  thought  may  be 
traced.  In  the  first  Schaffle  follows  Hermann's  Use  theory, 
which  he  weakens  as  a  theory  by  the  subjective  colouring  he 
gives  to  the  conception  of  Use — so  bringing  it  nearer  to  the 
second  of  his  theories.  The  first  current  predominates  in  the 
Gesellschaftliche  System  der  nwnschlichcn  Wirthschaft,  and  has 
left  evident  traces  even  in  the  Bau  und  Leben.1  The  second 
current  takes  the  direction  of  making  interest  a  kind  of  pro- 
fessional income,  an  income  which  is  drawn  by  the  capitalist 
for  certain  services  he  renders.  This  conception,  which  had 
already  appeared  in  the  Gesellschaftliche  System,  is  explicitly 
confirmed  in  the  Bau  und  Lebcn.2  But,  finally,  by  the  side  of 
1  See  above,  p.  206.  2  See  above,  p.  306. 


CHAP,  i  SCHAFFLE  411 

this  in  the  Bau  und  Leben  there  appear  numerous  approxima- 
tions to  the  socialist  Exploitation  theory.  The  chief  of  these 
is  the  resolution  of  all  the  costs  of  production  into  labour. 
While  in  the  Gesellschaftliche  System l  Schaffle  had  still 
recognised  the  uses  of  wealth  as  an  independent  and  element- 
ary factor  in  cost  besides  labour,  he  now  says :  "  Costs  have 
two  constituents :  expenditure  of  personal  goods  through  the 
putting  forth  of  labour,  and  expenditure  of  capital  But  the 
latter  costs  also  can  be  traced  back  to  labour  costs,  for  the 
productive  expenditure  of  real  goods  may  be  reduced  to  a  sum 
of  labours  expended  at  earlier  periods ;  all  costs,  therefore, 
may  be  considered  as  costs  of  labour." 2 

If  thus  the  labour  which  the  production  of  goods  costs 
is  the  only  economic  sacrifice  that  requires  to  be  considered, 
it  is  but  a  step  farther  to  claim  the  whole  result  of  production 
for  those  who  have  made  this  sacrifice.  Thus  Schaffle 
repeatedly  gives  us  to  understand  (e.g.  iii.  p.  313,  etc.) 
that  he  considers  the  ideal  economic  distribution  of  goods 
to  be  the  division  to  the  members  of  the  community  accord- 
ing to  work  done.  In  the  present  day  of  course  the 
realisation  of  this  ideal  is  still  prevented  by  all  kinds  of 
hindrances ;  among  others,  by  the  fact  that  wealth  as  capital 
serves  as  an  instrument  of  appropriation — partly  an  illegal 
and  immoral  appropriation,  partly  a  legal  and  moral  appro- 
priation of  the  product  of  labour.^  This  appropriation  of 
surplus  value  by  the  capitalists  Schaffle  does  not  condemn 
unconditionally ;  he  would  let  it  continue  as  a  temporary  and 
artificial  arrangement  so  long  as  we  are  not  able  to  replace  the 
"  economic  service  of  private  capital  by  a  more  perfect  public 
organisation,  established  by  law,  and  less  'greedy  of  surplus 
value.'"4 

But  notwithstanding  this  opportunist  toleration,  Schaffle 
often  brings  forward  in  blunt  terms  the  dogma  of  the  Exploi- 
tation theory,  that  interest  is  a  robbery  of  the  product  of 
other  people's  labour.  Thus,  in  immediate  continuation  of 
these  words,  he  says :  "  All  the  same  the  speculative,  in- 
dividualistic organisation  of  business  is  not  the  non  plus  ultra 

1  i.  pp.  258,  268,  271,  etc. 

2  Bau  und  Leben,  iii.  p.  273,  etc.  3  iii.  p.  266,  etc. 
4  iii.  p.  423.     See  also  iii.  pp.  330,  386,  428,  etc. 


412 


THE  ECLECTICS 


BOOK  VII 


of  the  history  of  economics.  It  serves  a  social  purpose  only 
indirectly.  It  is  immediately  directed,  not  to  the  highest  net 
utility  of  the  whole,  but  to  the  greatest  acquisition  of  the 
means  of  production  by  private  owners,  and  towards  procuring 
for  the  families  of  the  capitalists  the  highest  life  of  enjoyment. 
The  possession  of  the  means  of  production,  movable  and  im- 
movable, is  made  use  of  to  appropriate  from  the  produce  of  the 
national  labour  as  much  as  possible.  Proudhon  has  already 
put  it  in  full  critical  evidence  that  capital  forestalls  labour  in  a 
hundred  different  forms.  The  only  share  of  which  the  wage 
labourer  is  assured  is  the  share  that  an  upright  beast  of  burden, 
endowed  with  reason,  and  therefore  incapable  of  being  reduced 
to  simple  animal  wants,  finds  necessary  to  sustain  him  in  the 
condition  of  life  in  which  he  has  been  placed  by  circumstances 
that  are  historical — this  condition  itself  being  necessary  to 
allow  of  the  capitalist's  competition." 


CHAPTER  II 

THE  LATER  FRUCTIFICATION  THEORY 

I  HAVE  pointed  to  the  wide  spread  of  eclecticism  as  a 
symptom  of  the  unsatisfactory  position  of  the  economical 
doctrine  of  interest.  Our  economists  select  elements  out  of 
many  theories,  when  and  because  no  one  of  the  existing  theories 
is  found  sufficient. 

A  second  symptom  that  points  in  the  same  direction  is  the 
fact  that,  in  spite  of  the  great  number  of  existing  theories,  there 
is  no  check  to  the  literature  of  the  subject.  Ever  since  scientific 
Socialism  brought  scepticism  to  bear  on  the  old  school  of  opinions 
there  has  been  no  lustrum,  and  in  the  latter  lustrum  no  year, 
in  which  some  new  interest  theory  has  not  seen  the  light  of 
day.  So  far  as  these  have  retained  at  least  some  principles  of 
the  older  explanations,  and  have  varied  them  only  in  the  way 
of  carrying  out  the  original  principles  more  strictly,  I  have 
tried  to  classify  them  according  to  the  prevailing  tendencies 
they  show,  and  have  included  them  in  the  statement  of 
preceding  chapters. 

But  some  recent  attempts  strike  out  a  way  of  their  own,1  and 

one  of  them  seems  remarkable  enough  to  call  for  fuller  notice, 

that  of  the  American  writer,  Henry  George.  From  its  likeness 
in  fundamental  ideas  to  Turgot's  Fructification  theory,  it  may 
be  appropriately  called  the  Later  Fructification  theory. 

George's 2  interest  theory  occurs  in  the  course  of  a  polemic 
against  Bastiat  and  his  weU-known  illustration  of  the  lending 

1  By  desire  of  the  author  I  here  omit,  as  of  little  interest  to  English  readers 
i  statement  and  criticism  of  Schellwien's  theory  (Die  Arbeit  mwL  ihr  RecU,  Berlin,' 
1882,  p.  195,  etc.),  which  occupies  pp.  477-486  of  the  German  edition.— W.  S. 

-  Progress  and  Poverty.     Kegan  Paul,  1885. 


414  THE  LATER  FRUCTIFICATION  THEORY    BOOK  vn 

of  the  plane.  A  carpenter  James  has  made  a  plane  for  his 
own  use,  but  lends  it  for  a  year  to  another  carpenter  William. 
At  the  end  of  the  year  he  is  not  content  with  getting  back  an 
equally  good  plane,  because  this  would  not  compensate  him  for 
the  loss  of  the  advantage  he  might  have  had  from  the  use  of 
the  plane  during  the  year,  and  on  that  account  he  asks  in 
addition  a  new  plank  as  interest.  Bastiat  had  explained  and 
justified  the  payment  of  the  plank  by  showing  that  William 
obtains  "the  power  which  exists  in  the  tool  to  increase  the 
productiveness  of  labour." l  This  explanation  of  interest  from 
the  productivity  of  capital  George  does  not  consider  valid,  for 
various  reasons  which  do  not  concern  us  here,  and  then 
proceeds  as  follows  :  "  And  I  am  inclined  to  think  that  if  all 
wealth  consisted  of  such  things  as  planes,  and  all  production 
was  such  as  that  of  carpenters — that  is  to  say,  if  wealth  con- 
sisted but  of  the  inert  matter  of  the  universe,  and  production 
of  working  up  this  inert  matter  into  different  shapes — that 
interest  would  be  but  the  robbery  of  industry,  and  could  not 
long  exist.  .  .  .  But  all  wealth  is  not  of  the  nature  of  planes 
or  planks,  or  money,  nor  is  all  production  merely  the  turning 
into  other  things  of  the  inert  matter  of  the  universe.  It  is  true 
that  if  I  put  away  money  it  will  not  increase.  But  suppose 
instead  I  put  away  wine.  At  the  end  of  a  year  I  will  have 
an  increased  value,  for  the  wine  will  have  improved  in  quality. 
Or  suppose  that  in  a  country  adapted  to  them  I  set  out  bees ; 
at  the  end  of  a  year  I  will  have  more  swarms  of  bees,  and  the 
honey  which  they  have  made.  Or  supposing,  where  there  is  a 
range,  I  turn  out  sheep,  or  hogs,  or  cattle ;  at  the  end  of  the 
year  I  will,  upon  the  average,  also  have  an  increase.  Now 
what  gives  the  increase  in  these  cases  is  something  which, 
though  it  generally  requires  labour  to  utilise  it,  is  yet  distinct 
and  separable  from  labour  —  the  active  power  of  nature; 
the  principle  of  growth,  of  reproduction,  which  everywhere 
characterises  all  the  forms  of  that  mysterious  thing  or  condition 
which  we  call  life.  And  it  seems  to  me  that  it  is  this  that  is 
the  cause  of  interest,  or  the  increase  of  capital  over  and  above 
that  due  to  labour." 

The  fact  that,  for  the  utilisation  of  the  productive  forces 
of  nature,  labour  also  is  necessary,  and  that,  consequently,  the 

1  Capital  et  Rente.     See  above,  p.  289. 


CHAP,  ii  HENRY  GEORGE  415 

produce  of  agriculture,  for  instance,  is  in  a  certain  sense  a 
produce  of  labour,  is  not  sufficient  to  obliterate  the  essential 
difference  that  exists,  according  to  George,  between  the  different 
modes  of  production.  In  such  modes  of  production  as  consist 
"  merely  of  changing  the  form  or  place  of  matter,  as  planing 
boards  or  mining  coal,  labour  alone  is  the  efficient  cause.  .  .  . 
When  labour  stops  production  stops.  When  the  carpenter 
drops  his  plane  as  the  sun  sets,  the  increase  of  value  which  he 
with  his  plane  is  producing  ceases  until  he  begins  his  labour 
again  the  following  morning.  When  the  factory  bell  rings  for 
closing,  when  the  mine  is  shut  down,  production  ends  until  work 
is  resumed.  The  intervening  time,  so  far  as  regards  production, 
might  as  well  be  blotted  out  The  lapse  of  days,  the  change  of 
seasons,  is  no  element  in  the  production  that  depends  solely  on  the 
amount  of  labour  expended."  But  in  the  other  modes  of  pro- 
duction "  which  avail  themselves  of  the  reproductive  forces  of 
nature  time  is  an  element  The  seed  in  the  ground  germinates 
and  grows  while  the  farmer  sleeps  or  ploughs  the  fields." l 

So  far  George  has  shown  how  certain  naturally  fruitful 
kinds  of  capital  bear  interest  But,  as  every  one  knows,  all 
kinds  of  capital,  even  those  that  are  naturally  unfruitful,  pro- 
duce interest  George  explains  this  simply  from  the  efficiency 
of  the  law  of  equalisation  of  profits.  "No  one  would  keep 
capital  in  one  form  when  it  could  be  changed  into  a  more 
advantageous  form.  .  .  .  And  so  in  any  circle  of  exchange 
the  power  of  increase  which  the  reproductive  or  vital  force  of 
nature  gives  to  some  species  of  capital  must  average  with  all ; 
and  he  who  lends  or  uses  in  exchange  money  or  planes  or  bricks 
or  clothing,  is  not  deprived  of  the  power  to  obtain  an  increase 
any  more  than  if  he  had  lent,  or  put  to  a  reproductive  use,  so 
much  capital  in  a  form  capable  of  increase." 

To  return  to  Bastiat's  illustration  :  the  reason  why  William 
at  the  end  of  the  year  should  return  to  James  more  than  an 
equally  good  plane,  does  not  rest  in  the  increased  power  "  which 
the  tool  gives  to  labour,"  for  "that  is  not  an  element  .  .  .  but  it 

1  Parallel  with  the  "vital  forces  of  nature,"  according  to  George,  works  also 
' '  the  utilisation  of  the  variations  in  the  forces  of  nature  and  of  man  by  exchange." 
This  too  leads  to  "an  increase  which  somewhat  resembles  that  produced  by  the 
vital  forces  ofnpture"  (p.  129).  But  I  need  not  here  enter  into  a  more  exact 
exposition  of  t!  is  somewhat  obscure  element,  since  George  himself  ascribes  to  it 
only  a  secondary  role  in  the  origination  of  interest. 


416  THE  LATER  FRUCTIFICATION  THEORY    BOOK  vn 

springs  from  the  element  of  time — the  difference  of  a  year  be- 
tween the  lending  and  return  of  the  plane.  Now  if  the  view 
is  confined  to  the  illustration,  there  is  nothing  to  suggest  how 
this  element  should  operate,  for  a  plane  at  the  end  of  the  year 
has  no  greater  value  than  at  the  beginning.  But  if  we  sub- 
stitute for  the  plane  a  calf,  it  is  clearly  to  be  seen  that  to  put 
James  in  as  good  a  position  as  if  he  had  not  lent,  William  at 
the  end  of  the  year  must  return  not  a  calf,  but  a  cow.  Or  if 
we  suppose  that  the  ten  days'  labour  had  been  devoted  to 
planting  corn,  it  is  evident  that  James  would  not  have  been 
fully  recompensed  if  at  the  end  of  the  year  he  had  received 
simply  so  much  planted  corn,  for  during  the  year  the  planted 
corn  would  have  germinated  and  grown  and  multiplied ;  so,  if 
the  plane  had  been  devoted  to  exchange,  it  might  during  the 
year  have  been  turned  over  several  times,  each  increase  yielding 
an  increase  to  James.  ...  In  the  last  analysis  the  advantage 
which  is  given  by  the  lapse  of  time  springs  from  the  generative 
force  of  nature  and  the  varying  powers  of  nature  and  of  man." 

The  resemblance  of  all  this  to  Turgot's  Fructification  theory 
is  obvious.  Both  start  with  the  idea  that  in  certain  kinds  of 
goods  there  resides,  as  a  natural  endowment,  the  ability  to  bring 
forth  an  increment  of  value ;  and  both  demonstrate  that,  under 
the  influence  of  exchange  transactions  and  the  efforts  of 
economic  men  to  get  possession  of  this  most  remunerative 
fructification,  the  endowment  must  artificially  become  the 
general  property  of  all  kinds  of  goods.  They  differ  only  in 
that  Turgot  places  the  source  of  the  increment  of  value 
quite  outside  of  capital,  in  rent -bearing  land,  while  George 
seeks  it  inside  the  sphere  of  capital,  in  certain  naturally  fruitful 
kinds  of  goods. 

This  difference  avoids  the  weightiest  objection  that  we  had 
to  urge  against  Turgot.  Turgot  had  left  unexplained  how  it 
is  possible  to  purchase,  for  a  relatively  small  sum  of  capital, 
land  which  yields  successively  an  infinite  sum  of  rent,  and 
to  secure  the  advantage  of  an  enduring  fructification  for  un- 
fruitful capital.  With  George,  on  the  other  hand,  it  seems 
to  need  no  proof  that  unfruitful  wealth  is  exchanged  in  equal 
ratio  with  fruitful.  For  since  the  latter  can  be  produced  in 
;iny  quantity  at  will,  the  possibility  of  increasing  the  supply 


CHAP.    II 


HENRY  GEORGE  417 


of  such  goods  will  not  permit  of  their  enjoying  a  higher  level 
of  price  than  the  unfruitful  goods  that  cost  as  much  to  produce. 
On  the  other  hand,  George's  theory  is   open  to  two  other 
criticisms,  which  are,  I  think,  decisive. 

First,  the  separation  of  production  into  two  groups,  in  one 
of  which  the  vital  forces  of  nature  form  a  distinct  element  in 
addition  to  labour,  while  in  the  other  they  do  not,  is  entirely 
untenable.      George  here  repeats  in  a  somewhat  altered  form 
the  old  mistake  of  the  physiocrats,  who  would  not  allow  that 
nature  co-operates  in   the  work  of  production  except  in  one 
single  branch  of  it,  agriculture.      The  natural  sciences  have  long 
a^o  told  us  that  the  co-operation  of  nature  is  universal.     All 
our  production  rests  on  the  fact  that,  by  the  application  of 
natural  forces,  we  put  imperishable  matter  into  useful  forms. 
Whether  the  natural  power   of  which  we  avail   ourselves  in 
this  be  vegetative  or  inorganic,  mechanical  or  chemical,  makes 
no  difference  whatever  in  the  relation  in  which  natural  power 
stands  to  our  labour.      It  is  quite  unscientific  to  say  that,  in 
production  by  means  of  a  plane,  "  labour  alone  is  the  efiicient 
cause."      The   muscular   movement    of   the   man    who    planes 
would  be  of  very  little  use  if  the  natural  powers  and  properties 
of  the  steel  edge  of  the  plane  did  not  come  to  his  assistance. 
Is  it  even   true  that,  on  account  of  the  character   of  plank 
planing  as  a  "  simple  change  of  form  or  place  of  the  material," 
nature  in  this  case  can  do  nothing  without  labour  ?     Can  we  not 
fasten  the  plane  into  an  automatic  machine,  and  get  it  driven 
by  the  force  of  a  stream ;  and  will  not  the  plane,  untiring,  con- 
tinue the  production  even  when  the  carpenter  sleeps  ?     What 
more  does  nature  do  in  the  growing  of  grain  ? 

Second,  George  has  not  explained  that  prior  phenomenon 
of  interest  by  which  he  seeks  to  explain  all  the  other  phenomena. 
He  says  all  kinds  of  goods  must  bear  interest  because  they 
can  be  exchanged  for  seed-corn,  cattle,  or  wine  and  these  bear 
an  interest.  But  why  do  these  bear  an  interest .' 

Many  a  reader  will  perhaps  think,  at  the  first  glance,  as 
George  himself  evidently  thinks,  that  it  is  self-evident. 
It  is  evident  that  the  ten  grains  of  wheat,  into  which  the  one 
grain  has  multiplied  itself,  are  worth  more  than  .the  one 
grain  of  wheat  that  was  sown;  that  the  grown-up  cow  is 
worth  more  than  the  calf  out  of  which  it  grew.  (Duly  it  would 

2  E 


418  THE  LATER  FRUCTIFICATION  THEORY    HOOK  vn 

be  well  to  consider  that  it  is  not  a  matter  of  ten  grains  simply 
growing  out  of  one  grain.  The  action  of  cultivated  land,  and 
a  certain  expenditure  of  labour,  have  had  a  share  in  it.  And 
that  ten  grains  are  worth  more  than  one  grain  +  the  action  of 
the  ground  and  -f  the  labour  expended,  is  obviously  not  self- 
evident.  Just  as  little  is  it  simply  self-evident  that  the  cow  is 
worth  more  than  the  calf  +  the  fodder  which  it  has  consumed 
during  its  growth  -f  the  labour  which  its  rearing  demanded. 
And  yet  it  is  only  under  these  conditions  that  interest  can  fall 
to  the  share  of  the  grain  of  wheat,  or  to  the  calf. 

Indeed,  even  in  the  case  of  wine  which  improves  in  lying, 
it  is  not  by  any  means  self-evident  that  the  wine  which  has  grown 
better  is  of  more  value  than  the  inferior  and  unripe  wine. 
For  in  our  method  of  valuing  the  goods  which  we  possess  we 
follow  unhesitatingly  the  principle  of  anticipating  future  use.1 
We  do  not  estimate  the  value  of  our  goods  according  to  the  use — 
at  least  we  do  not  value  them  only  according  to  the  use — which 
they  bring  us  at  the  moment,  but  also  according  to  that  use  which 
they  will  bring  us  in  the  future.  We  ascribe  to  the  field,  which 
for  the  moment  lies  useless  in  fallow,  a  value  with  regard  to  the 
crop  which  it  will  bring  us  by  and  by.  We  give  a  value  even 
now  to  the  scattered  bricks,  beams,  nails,  clamps,  etc.,  which 
bring  us  no  use  when  in  that  condition,  in  consideration  of  the 
use  they  will  afford  us  when  put  together  at  some  future  time 
in  the  shape  of  a  house.  We  value  the  fermenting  must,  which, 
as  such,  we  cannot  make  any  use  of,  because  we  know  that  by 
and  by  it  will  be  serviceable  wine.  And  so  might  we  also  value 
the  unripe  wine,  which  we  know  will  become  excellent  wine 
after  lying,  by  the  .amount  of  use  which  it  will  give  us  as 
matured  wine.  But  if  we  ascribe  to  it  here  and  now  a  value 
corresponding  to  that  future  use,  there  remains  no  room  for  an  in- 
crease of  value,  and  for  interest.  And  why  should  we  not  ? 

And  if  we  do  not  ascribe  such  a  value,  or  not  quite  such 
a  value,  the  cause  is  certainly  not  to  be  found,  as  George 
imagines,  in  the  productive  powers  of  nature  which  the  wine 
possesses.  For  that  there  are  vital  forces  of  nature  in  the 
fermenting  must,  which  in  itself  is  even  hurtful,  or  in  the  unripe 
wine,  which  of  itself  is  of  little  use  ;  and  that  these  vital  forces 


i 

80,  etc. 


See  my  remarks  on  "Computation  of  Wealth  "  in  Eecktc  vnd  Verhdltnisse,  p. 
-n 


CHAP.    II 


HENRY  GEORGE  419 


tend  to  the  furnishing  of  a  costly  product,  can,  in  the  nature  of 
things,  only  afford  a  ground  for  valuing  the  goods  which  con- 
tain these  precious  forces  at  a  high  figure,  not  at  a  low  one. 
If,  nevertheless,  we  value  them  at  a  relatively  low  figure,  we 
do  it  not  because  of  their  containing  useful  natural  forces,  but 
in  spite  of  it.  The  surplus  value  of  the  products  of  nature, 
which  George  appeals  to,  is  therefore  not  self-evident. 

George  makes  one  attempt  to  explain  this  surplus  value, 
though  it  must  be  called  a  very  lame  one.  He  says  that  time, 
as  well  as  labour,  constitutes  an  independent  element  in  its 
production.  But  is  this  really  an  explanation,  or  is  it  an 
evasion  of  the  explanation  ?  How  comes  the  person  who 
throws  a  seed  of  corn  into  the  earth  to  get  compensation, 
out  of  the  value  of  the  product,  not  only  for  his  labour  but 
also  for  the  time  that  the  seed  has  lain  in  the  ground  and 
<*rown  ?  Is  time  then  the  object  of  a  monopoly  ?  Such  an 
argument  almost  tempts  one  to  recall  the  naive  words  of  the 
old  canonist,  that  time  is  a  good  common  to  all,  to  the  debtor 
as  to  the  creditor,  to  the  producer  as  to  the  consumer. 

Of  course  George  did  not  mean  time,  but  the  vegetative 
powers  of  nature  actually  working  during  time.  But  how 
should  the  producer  manage  to  get  himself  paid  for  these 
vegetative  forces  of  nature  by  a  special  surplus  value  in  the 
product  ?  Are,  then,  these  natural  powers  objects  of  a  monopoly  ? 
Are  they  not  rather  accessible  to  every  man  who  owns  a 
seed  of  corn  ?  And  cannot  every  one  put  himself  in  possession 
of  a  seed  of  corn  ?  Since  the  production  of  seed-corn  can  be 
indefinitely  augmented  by  labour,  would  the  amount  of  corn 
not  be  steadily  increased  so  long  as  a  monopoly  of  the  natural 
forces  immanent  in  the  grain  made  its  possession  appeal- 
peculiarly  advantageous?  And  would  not,  on  that  account, 
the  supply  inevitably  increase  till  the  extra  profit  due  to  that 
monopoly  was  absorbed,  and  the  production  of  corn  became  no 
more  remunerative  than  any  other  kind  of  production  ? 

The  careful  reader  will  note  that  in  this  discussion  we 
have  come  back  into  the  same  groove  of  ideas  into  which  we 
were  brought  by  our  criticism  of  Strasburger's  Productivity 
theory.1  In  this  part  of  his  work  George  has  under-estimated 
the  interest  problem  in  the  same  way  as  Strasburger  did,  only 

1  See  above,  p.  178. 


420  THE  LATER  FRUCTIFICATION  THEORY    BOOK  vn 

to  a  greater  extent  and  with  still  greater  naivety.  Both 
hastily  conclude  that  the  powers  of  nature  are  the  cause 
of  interest.  But  Strasburger  at  least  made  an  attempt  to 
investigate  exactly  the  alleged  causal  connection  between  the 
two,  and  to  follow  it  out  in  detail.  George,  on  the  contrary, 
gives  us  nothing  but  assertions  which  take  for  granted  that,  in 
certain  productions,  time  is  an  "  element."  It  is  certainly  not 
in  this  superficial  way  that  the  great  problem  is  to  be  solved. 


CONCLUSION. 

OUR  attention  has  been  too  long  fixed  on  individual  theories. 
Let  us,  in  conclusion,  consider  the  subject  as  a  whole.  We  have 
seen  the  rise  of  a  motley  array  of  interest  theories.  We  have 
considered  them  all  carefully  and  tested  them  thoroughly. 
No  one  of  them  contains  the  whole  truth.  Are  they  on  that 
account  quite  fruitless  ?  Taken  all  together,  do  they  form 
nothing  but  a  chaos  of  contradiction  and  error,  that  leaves  us 
no  nearer  the  truth  than  when  we  started  ?  Is  it  not  rather 
the  case  that,  through  the  tangle  of  contradictory  theories,  there 
runs  a  line  of  development  which,  if  it  has  not  itself  led  to  the 
truth,  has  at  least  pointed  the  way  in  which  truth  is  to  be 
found  ?  And  how  runs  the  line  of  this  development  ? 

I  cannot  better  introduce  the  answer  to  this  last  question 
than  by  asking  my  readers  once  more  to  put  clearly  before 
their  minds  the  substance  of  our  problem.  What  really  is  the 
problem  of  interest  ? 

The  problem  is  to  discover  and  state   the  causes  which 
guide  into  the  hands  of  the  capitalists  a  portion  of  the  stream- 
of    goods   annually   flowing   out   of    the   national   production. 
There  can  be  no  question  then  that  the  interest  problem  is  a 
problem  of  distribution. 

But  in  what  part  of  the  stream  is  it  that  the  current 
branches  off  into  different  arms  ?  On  this  point  the 
historical  development  of  theory  has  brought  to  light  three 
essentially  distinct  views,  and  these  views  have  led  to  three  as 
distinct  fundamental  conceptions  of  the  whole  problem. 

Let  us  keep  for  a  moment  to  the  figure  of  the  stream  :  it 
will  serve  very  well  to  illustrate  the  subject.  The  source 


42^  CONCLUSION 

represents  the  production  of  goods ;  the  mouth  the  ultimate 
division  into  incomes  whereby  human  needs  are  satisfied ;  the 
course  of  the  stream  represents  that  stage  between  source  and 
ultimate  division  where  goods  pass  from  hand  to  hand 
in  economic  transactions,  and  receive  their  value  by  human 
estimation. 

Now  the  three  views  are  the  following.  One  view  has  it 
that  the  capitalist's  share  is  already  separated  out  from  the  first. 
Three  distinct  sources — nature,  labour,  and  capital — each  in 
Virtue  of  its  inherent  productive  power,  bring  forth  a  definite 
quantity  of  goods,  with  a  definite  quantity  of  value,  and  just 
the  same  amount  of  value  as  lias  flowed  from  each  source  is 
discharged  into  the  income  of  those  persons  who  own  the  source. 
It  is  not  so  much  one  stream  as  three  streams,  that  flow 
together  for  a  long  time  in  the  same  bed.  But  their  waters 
do  not  mingle,  and  at  the  mouth  they  divide  again  in  the 
same  proportion  as  when  they  came  out  of  the  separate  sources. 
This  view  transfers  the  whole  explanation  to  the  source  of 
wealth ;  it  treats  the  problem  of  interest  as  a  problem  of 
production.  It  is  the  view  of  the  Naive  Productivity  theories. 

The  second  view  is  directly  opposed  to  the  first.  It  finds 
the  division  first  and  exclusively  in  the  discharge.  There  is 
only  one  source,  labour.  Out  of  it  pours  the  whole  stream  of 
wealth,  one  and  undivided.  Even  the  course  of  the  stream  is 
undivided ;  in  the  value  of  goods  there  is  nothing  to  prepare 
the  way  for  a  division  of  them  among  different  participants, 
for  all  value  is  measured  simply  by  labour.  It  is  just  at  the 
mouth,  just  where  the  stream  of  wealth  is  about  to  pour  out, 
and  should  pour  out  into  the  income  of  the  workers  who 
produce  it,  that,  from  each  side,  the  owners  of  land  and  the 
owners  of  capital  thrust  out  a  dam  into  the  stream,  and 
forcibly  divert  a  part  of  the  current  into  their  own  property. 
This  is  the  view  of  the  socialist  Exploitation  theory.  It  denies 
interest  any  previous  history  in  the  earlier  stages  of  the  career 
of  wealth.  It  sees  in  it  simply  the  result  of  an  inorganic, 
accidental,  and  violent  taking.  It  treats  the  problem  as  purely 
one  of  distribution  or  division  in  the  most  offensive  sense  of 
the  word. 

The  third  view  lies  midway  between  the  two.  According 
to  it  there  are  two,  perhaps  even  three  springs  in  the  source 


THREE  CONCEPTIONS  OF  THE  PROBLEM          423 

out  of  which  flows  the  undivided  stream  of  wealth.     But  in 
its  course  this  stream  conies  under  the  influences  that  create 
value,  and   under   these  influences  it  immediately  begins   to 
branch  asunder  again.     That  is  to  say,  in  their  calculation  of 
use  values  (and  of  exchange  values  based  on  these)  men  put 
a  value  on  the  importance  they  attach  to  various  goods  and 
classes   of   goods,  taking   into   consideration  the  amount  and 
intensity  of  their  needs  on  the  one  hand,  and  the  quantity  of 
means  available  to  satisfy  them  on  the  other,  and  thus  come 
to   make  division  between   goods  and   goods;  they  raise  one 
kind  and  lower  another.     Thus  emerge  complicated  differences 
of  level,  complicated  tensions  and  attractions,  under  the  influ- 
ence of  which  the  stream  of  goods  is  gradually  forced  asunder 
into  three  branches,  of  which  each  has  its   particular  mouth. 
The  one  mouth  discharges  yito  the  income  of  the  owners  of 
the  land  ;  the  second  into  that  of  the  workers ;  the  third  into 
that  of  the  capitalists.     But  these  three  branches  are  neither 
identical  with   the   two   or   three   springs,  nor   do   they  even 
correspond  with   them  in  force.     What  decides  the  force  of 
each  branch  at  its  mouth  is  not  the  strength  of  each  spring  at 
its  source,  but  the  amount  which  the  formation  of  values  has 
forced  from  the  united  stream  into  each  of  the  three  branches. 
This  then  is  the  view  in  which  all  the  remaining  theories 
of  interest  agree.     They  find  the  final  division  already  sug- 
gested in  the  stage  of  the  formation  of  values,  and  therefore 
they  consider  it  their  duty  to  carry  back  their  theory  into 
this  sphere.     They  supplement  and  widen  out  the  distribution 
problem  of  interest  into  a  problem  of  value. 

Which  of  these  three  fundamental  conceptions  is  the 
right  one  ?  To  any  moderate  and  candid  observer  the  answer 
cannot  remain  doubtful. 

It  certainly  is  not  the  first  view.  Not  only  is  coital 
not  an  original  source  of  wealth, — since  it  is  at  all  times 
the  fruit  of  nature  and  labour, — but,  as  we  have  suffi- 
ciently proved,  there  is  no  power  whatever  in  a  factor  of 
production  to  turn  out  its  physical  products  with  a  definite 
value  attached  to  them.  In  the  production  of  goods  neither 
value  in  general,  nor  surplus  value  in  particular,  nor  interest 
on  capital  comes  ready-made  into  the  world.  The  problem  of 
interest  is  not  a  simple  problem  of  production. 


424  CONCLUSION 

But  neither  can  the  second  conception  be  the  correct  one. 
The  facts  are  against  it.  It  is  not  for  the  first  time  in  the  dis- 
tribution of  goods,  but  before  that,  in  the  formation  of  value, 
that  a  foreign  element  intrudes  itself  by  the  side  of  labour. 
An  oak  tree  a  hundred  years  old,  which  during  its  long  growth 
has  only  required  the  attention  of  a  single  day's  labour,  has  a 
hundred  times  higher  value  than  the  chair  which  another  day's 
labour  has  made  out  of  a  pair  of  boards.  In  this  case  the  oak 
trunk,  the  product  of  one  day's  labour,  does  not  at  once  become 
a  hundred  times  more  valuable  than  the  chair  which  costs  one 
day's  labour.  But  day  by  day,  year  by  year,  the  growing  value 
of  the  oak  diverges  from  the  value  of  the  chair.  And  as  it  is 
with  the  value  of  the  oak,  so  is  it  with  the  value  of  all  those 
products  the  production  of  which  costs,  not  only  labour,  but 
time. 

Now  it  is  the  same  quiet  and  stubborn  working  forces 
as,  step  by  step,  separated  the  value  of  the  oak  from  that  of 
the  chair,  that  have  at  the  same  time  produced  interest  on 
capital.  These  forces,  effective  long  before  goods  come  to 
division,  have  marked  out  the  future  limiting  line  between  wage 
of  labour  and  interest  on  capital.  For  labour  can  be  paid  on 
no  other  principle  than  "  like  wages  for  like  work."  But  if  the 
value  of  goods  produced  by  similar  labour  becomes  dissimilar 
through  the  action  of  these  forces,  the  similar  level  of  wages  can- 
not everywhere  be  maintained  and  coincide  with  the  dissimilar 
rise  in  the  value  of  goods.  It  is  only  the  value  of  goods  not 
thus  favoured  that  falls  in  level,  and  is  appropriated  by  the 
general  rate  of  wages  which  it  determines.  All  goods  that  are 
favoured  rise  above  this  level  in  proportion  as  they  have  been 
favoured  by  the  formation  of  value,  and  could  not  be  appro- 
priated by  the  general  rate  of  wages.  When  then  the  final 
division  comes,  after  all  the  workers  have  received  like  wages 
for  like  work,  these  favoured  goods  must  of  themselves  leave 
something  over  which  the  capitalist  can  and  may  appropriate. 
They  leave  this  something  over,  not  because  at  the  last  moment 
the  capitalist,  by  his  sudden  snatch  at  the  spoil,  artificially 
forces  down  the  level  of  wages  under  the  level  of  the  value  of 
goods,  but  because,  long  previously,  the  tendencies  of  the  forma- 
tion of  value  had  raised  the  value  of  those  goods  which  cost 
labour  and  time  above  the  value  of  those  other  goods  which 


FUNDAMENTALLY  A  PROBLEM  OF  VALUE        425 

cost  only  labour  producing  its  result  at  once ; — the  value  of 
which  latter  labour,  as  it  must  be  sufficient  to  satisfy  the 
labour  of  its  production,  forms  at  the  same  time  the  standard 
for  the  general  rate  of  wages. 

So  speak  the  facts.  The  conclusions  which  they  force  us 
to  draw  are  clear.  The  problem  of  interest  is  a  problem  of 
distribution.  But  the  distribution  has  a  previous  history,  and 
must  be  explained  by  that  previous  history.  The  sums  of 
wealth  do  not  start  away  from  each  other  on  a  sudden ;  the 
diverging  lines  which  they  follow  were  quietly  and  gradu- 
ally cut  out  in  previous  stages  of  their  career.  Whoever 
wishes  really  to  understand  the  distribution,  and  truly  to  ex- 
plain it,  must  go  back  to  the  origin  of  the  quiet  but  distinct 
grooving  of  these  lines  of  division,  and  this  will  lead  him  to 
the  sphere  of  value.  This  is  where  the  principal  work  is  to  be 
done  in  the  explanation  of  interest.  Whoever  treats  the  pro- 
blem as  a  simple  problem  of  production  breaks  off  his  explana- 
tion before  he  has  come  to  the  principal  point.  Whoever  treats 
it  as  a  problem  of  distribution,  and  distribution  only,  begins  it 
after  the  principal  point  is  passed.  It  is  only  the  economist 
who  undertakes  to  clear  up  those  remarkable  rises  and  falls  of 
value,  where  the  rises  are  surplus  value,  who  can  hope,  in 
explaining  them,  to  explain  interest  in  a  really  scientific 
way.  The  interest  problem  in  its  last  resort  is  a  problem  of 
value. 

If  we  keep  this  in  view  we  shall  easily  find  the  order  of 
merit  into  which  these  various*  groups  of  theories  fall,  and  we 
shall  ascertain  where  runs  the  upward  line  of  the  development. 

Two  theories  have  entirely  mistaken  the  character  of  the 
interest  problem;  together — the  one  forming  the  counterpart 
of  the  other- — they  constitute  the  lowest  step  in  the  develop- 
ment. These  are  the  Naive  Trod  activity  theory  and  the 
socialist  Exploitation  theory.  It  may  seem  strange  to  mention 
these  two  in  the  same  breath.  How  widely  the  two  diverge 
in  the  results  at  which  they  arrive!  How  much  superior  the 
adherents  of  the  Exploitation  theory  consider  their  arguments 
to  the  naive  assumptions  of  the  Productivity  theorists !  How 
proudly  they  proclaim  their  own  advanced  critical  attitude  ! 
The  association,  however,  is  justified.  First,  the  two  theories 
agree  in  what  they  do  not  do.  Neither  of  them  touches  on  the 


426  CONCLUSION 

distinctive  problem.  Neither  of  them  wastes  words  in  explaining 
those  peculiar  waves  which  are  thrown  up  by  the  value  of  goods, 
and  out  of  which  surplus  value  conies.  The  Productivity  theory 
contents  itself  with  saying,  in  regard  to  these  waves  of  value, 
that  they  have  been  produced.  The  Exploitation  theory,  almost 
more  culpably,  does  not  even  notice  them ;  for  it  they  do  not 
exist;  for  it,  however  the  facts  of  the  economical  world  may 
run  contrary,  the  level  of  the  value  of  goods  agrees  simply 
with  the  level  of  the  labour  expended  on  them. 

But  not  only  negations,  but  positive  ideas  bind  these  two 
theories  more  closely  together  than  could  well  be  believed. 
They  are  in  truth  fruit  of  one  and  the  same  bough  ;  children 
of  one  and  the  same  naive  'assumption  that  value  grows  out  of 
production  like  the  blade  out  of  the  field. 

This  assumption  lias  an  important  history  of  its  own  in 
economic  literature.  In  constantly  changing  shapes  it  has, 
for  a  hundred  and  thirty  years,  ruled  our  science,  and  by 
forcing  the  explanation  of  the  fundamental  phenomenon  in  a 
wrong  direction  has  hindered  its  progress.  First  it  appears  in 
the  physiocrat  doctrine  that  land  creates  all  surplus  of  value 
by  its  own  fruitfulness.  Adam  Smith  took  the  strength  away 
from  the  assumption.  Eicardo  entirely  uprooted  it.  But, 
before  the  first  phenomenal  form  of  it  had  quite  disappeared, 
Say  introduced  it  for  a  seeond  time  into  the  science  in  a  new 
and  extended  form.  Instead  of  the  one  productive  power  of  the 
physiocrats  appear  three  productive  powers,  which  produce 
values  and  surplus  values  exactly  in  the  same  way  as  formerly 
the  physiocrats  had  produced  the  produit  net.  Under  this 
form  the  assumption  held  the  science  under  its  ban  for  ten 
long  decades.  At  length  the  spell  was  broken,  for  the  most 
part  through  the  passionate  but  praiseworthy  criticism  of  the 
socialist  theorists.  But  still  its  tough  vitality  asserted  itself. 
Giving  up  the  form,  not  the  substance,  it  managed  to  save 
itself  under  a  new  disguise,  and  by  a  strange  freak  of  fortune 
found  its  new  home  in  the  writings  of  those  who  had  most 
bitterly  opposed  it,  the  Socialists.  The  value-creating  powers 
were  gone ;  the  value-creating  power  of  labour  remained,  and 
with  it  the  :olcl  fatal  weakness  that,  instead  of  the  subtle 
syntheses  of  the  formation  of  value  which  should  be  the  work 
and  the  pride  of  our  science  to  unravel,  there  was  nothing  left 


RANK  OF  THE   VARIOUS  THEORIES  427 

but  a  stout  assumption,  or,  so  'far  as  an  assumption  would  not 
pass,  a  still  more  stout  denial. 

Thus  the  naive  theory  of  the  Productivity  of  capital  and 
the  emancipated  theory  of  the  socialists  are  twin  systems. 
So  far  as  the  latter  aspires  to  be  a  critical  theory,  well  and 
good ;  it  is  really  so ;  but  it  is  also  obviously  a  naive  doctrine. 
It  criticises  one  naive  extreme  only  to  fall  into  an  opposite 
extreme  that  is  no  less  naive.  It  is  nothing  else  than  the 
long-delayed  counterpart  of  the  Naive  Productivity  theory. 

In  comparison  with  it  the  remaining  theories  of  interest 
may  take  credit  to  themselves  for  standing  a  step  higher.  They 
seek  for  the  solution  of  the  interest  problem  on  the  ground 
where  the  solution  is  really  to  be  found,  the  ground  of  value. 
The  respective  merits  of  these  theories,  however,  are  different. 

Those  which  seek  to  explain  interest  by  the  external 
machinery  of  the  theory  of  costs  have  to  carry  a  heavy 
handicap  in  the  assumption  that  value  grows  out  of  produc- 
tion. Their  explanation  always  leaves  something  over  to 
explain.  Just  as  certain  as  is  the  fact  that  the  fundamental 
forces  which  set  in  motion  all  economical  efforts  of  men  are 
their  interests,  egoistic  or  altruistic,  so  certain  is  it  that  no 
explanation  of  the  economical  phenomena  can  be  satisfactory 
where  the  threads  of  explanation  do  not  reach  back  unbroken 
to  these  fundamental  and  undoubted  forces.  This  is  why 
the  cost  theories  fail.  In  thinking  that  they  find  the  principle 
of  value, — of  that  guide  and  universal  intermediate  motive  of 
human  economical  affairs, — not  in  a  relation  to  human  welfare, 
but  in  a  dry  fact  of  the  external  history  of  the  manufacture  of 
goods,  in  the  technical  conditions  of  their  production,  they 
follow  the  thread  of  explanation  into  a  cid-de-sac,  from  which 
it  is  impossible  to  find  a  way  to  the  psychological  interest- 
motive  to  which  every  satisfactory  explanation  must  go  back. 
This  condemnation  applies  to  the  majority  of  the  interest 
theories  we  have  been  considering,  however  different  the 
individual  theories  may  have  been. 

Lastly,  one  step  higher  in  rank  stand  those  theories  which 
have  quite  cut  themselves  adrift  from  the  old  superstition  that 
the  value  of  goods  comes  from  their  past  instead  of  from  their 
future.  These  theories  know  what  they  wish  to  explain,  and 
in  what  direction  the  explanation  is  to  be  sought.  If  they 


428  CONCLUSION 

have,  notwithstanding,  not  discovered  the  entire  truth,  it  is 
rather  the  result  of  accident ;  while  their  predecessors,  cut  off 
from  the  right  way  of  its  seeking  by  a  wall  of  assumption, 
sought  it  in  a  wrong  direction,  and  so  sought  it  in  vain.  The 
higher  step  of  the  development  is  indicated  in  certain'  indi- 
vidual formulations  of  the  Abstinence  theory,  but  principally 
in  the  later  Use  theories ;  and  here  it  is  the  theory  of 
Menger  which,  to  my  mind,  appears  the  highest  point  of  the 
development  \\p  till  now.  And  that  not  because  his  positive 
solution  is  the  most  complete,  but  because  his  statement  of  the 
problem  is  the  most  complete — two  things,  of  which,  as  is 
often  the  case,  the  second  may  perhaps  be  more  important  and 
more  difficult  than  the  first. 

On  the  foundation  thus  laid  I  shall  try  to  find  for  the 
vexed  problem  a  solution  which  invents  nothing  and  assumes 
nothing,  but  simply  and  truly  attempts  to  deduce  the  pheno- 
mena of  the  formation  of  interest  from  the  simplest  natural 
and  psychological  principles  of  our  science. 

I  may  just  mention  the  element  which  seems  to  me  to 
involve  the  whole  truth.  It  is  the  influence  of  Time  on 
human  valuation  of  goods.  To  expand  this  proposition  must 
be  the  task  of  the  second  and  positive  part  of  my  work. 


INDEX  OF  AUTHORS  MENTIONED 


Where  reference  is  given  to  several  passages  the  principal  ones  are 
indicated  by  black  figures. 


ALEXIUS  a  Massalia,  35,  37. 
Ambrosius,  20. 
Aquinas,  22,  2:5,  24. 
Aristotle,  16,  17,  48. 
Augustine,  20. 


BACON,  33,  43. 

Barbeyrac,  40. 

Bastiat,  288,  391,  407,  413,  415. 

Beccaria,  51. 

Benthnm,  47. 

Bernhar.li,  96,  205. 

Resold,  32. 

Bischof,  400. 

Bodiuus,  52. 

Bohmer,  15,  23,  40. 

Bornitz,  32. 

Boxhorn,  40. 

Biisch,  317. 


CAIRNES,  286. 

Calvin,  28,  64. 

Camerarius,  32. 

Canard,  105. 

Cancrin,  81. 

Carey,  153,  293. 

Cato,  16. 

Cauwes,  130,  304,  406. 

Chalmers,  102. 

Cherbuliez,  286,  305. 

Child,  44. 

Chrysostom,  20. 

Cicero,  16. 

Concilia,  49. 

Coiitzen,  41. 

Cossa,  400. 

Courcelle-Seneuil,  247,  300,  406. 

Covarruvias,  22. 

Culpepper,  43. 


DIKTZEL,  H.,  260. 

Dietzel,  K.,  287. 

Droz,  107. 

Diiliring,  324. 

Dumoulin  (see  Molinaeus). 


EISF.LF.N,  86. 

Endemann,  15,   18,  20,  21,  24,  25,  26, 
27,  30,  32,  37,  41,  59. 


FOUBONXAIS,  42,  49. 
Fulda,  86. 
Funk,  15,  57,  59. 


GAIUS,  255. 

Galiani,  48,  49,  56,  208,  259. 

Gamier,  G.,  105. 

Gamier,  J.,  130,  286,  305,  407. 

Genovesi,  50. 

George,  65,  413. 

Gerstner,  300,  406. 

Glaser,  172. 

Godwin,  405. 

Goldschmidt,  254. 

Graswinckel,  40. 

Grotius,  33,  34. 

Guth,  324. 


HELD,  318. 

Hermann,  188,  193,  207,  210,  216,  233, 

245,  325,  410. 
Hodgskin,  270,  318. 
Hoffmann,  312,  407. 
Hufeland,  81. 
Huhn,  400. 
Hume,  47,  58,  59,  60. 


430 


INDEX 


JAKOB,  85. 
Jevous,  286,  400. 
Jones,  102. 
Justi,  41,  58. 


KLEINWACHTEII,  130,  132. 

Kloppenburg,  40. 

Knies,   15,   16,    17,   18,  207,   216,  223, 

227,   239,   245,    255,   259,   339,    340, 

367,  375,  383,  384. 
Kozak,  328. 
Kraus,  81. 


LACTANTIUS,  20. 

Laspeyres,  15,  35,  40. 

Lassalle,  173,  276,  323. 

Lauderdale,  111,  143,  179,  270,  275. 

Law,  52,  58. 

Leibnitz,  41. 

Leroy-Beaulieu,  131,  141,  399. 

Locke,  44,  58,  60,  270,  317. 

Lotz,  83,  316. 

Lucder,  81. 

Luther,  27. 


M'CuLLOCH,    97,   270,    271,    275,    300, 

391,  405. 
M'Leod,  102. 
Maffei,  48. 

Malthus,  96,  149,  270,  274,  275,  408. 
Mangoldt,  205. 
Mavesius,  40. 
Mario,  192. 

Marx,  173,  174,  323,  325,  326,  367. 
Mataja,  212. 
Melanchthon,  27. 
Melon,  52. 

Monger,  188,  209,  260,  428. 
Mercier  de  la  Riviere,  62. 
Mill,  James,  270,  271,  275,  297,  300, 

320,  405,  406. 

Mill,  John  Stuart,  286,  325,  407. 
Mirabeau,  63,  62. 
Mithoff,  205. 
Molinaeus  (Dumoulin),  20,  28,  29,  33. 

37,  58. 

Molinari,  57,  130,  286,  399. 
Montesquieu,  52. 
Murhard,  81. 


NASSE,  208. 
Nebenius,  192,  271. 
Neumann,  15,  35,  41. 
Noodt,  40. 
North,  44. 


PETTY,  382. 

Pierstorff,  9,  71,  91,  137,  151,  275,  399. 

Plato,  16. 

Platter,  71,  74. 

Plautus,  16,  17. 

Politz,  81. 

Potliier,  62,  57. 

Proudhon,  130,  321,  325. 

Pufendorf,  41. 


QUESNAY,  62. 


RAU,  86. 

Read,  153,  300,  406. 

Ricardo,  87,   150,  202,   269,   271,   275, 

297,   312,  316,   320,   321,   339,   353, 

354,  376,  386,  408,  426. 
Riedel,  127,  132,  139,  210. 
Rizy,  15. 
Rodbertus,    173,    291,    306,    322,    325, 

326,  328,  374,  389,  390. 
Roesler,  172,  202. 
Iloscher,    15,   32,  33,  41,  44,  59,  113, 

128,    132,    139,   202,   210,   247,   248, 

286,  391,  400. 
Rossi,  130,  286,  397. 


SALMASIUS,  33,  36,   58,  59,  215,  247, 

256,  259. 
Sartorius,  81. 
Say,  J.  B.,  85,  104,  111,  120,  132,  139, 

188,    193,    194,   198,   210,   229,   232, 

245,  249,  325,  407. 
Schaffle,  206,  216,  221,  227,  229,  232, 

245,  249,  306,  325,  337,  410. 
Schanz,  43. 
Schelhvien,  413. 
Schmalz,  81. 
Schon,  137. 

Schulze-Delitzsch,  400. 
Schiiz,  286,  400. 
Scialoja,  131,  132. 
Scrope,  271. 
Seneca,  16,  17. 
Senior,    87,   247,    269,    271,    302,    325, 

403,  405,  408,  409. 
Seuter,  81. 
Sismondi,  318. 
Sivers,  63. 
Smith,  Adam,  70,  86,  87,  90,  91,  102, 

124,    127,   269,    271,    312,   316,   318, 

320,  325,  339,  376,  426. 
Smith,  Peshiue,  153,  161. 
Soden,  82,  316. 
Sonnenfels,  42,  58,  59,  317. 
Steuart,  46,  58,  59,  317. 
Storch,  190. 
Strasburger,  173,  391,  419. 


INDEX 


431 


TELLEZ,  21,  23. 
Thunen,  164,  205,  402. 
Torrens,  96,  151,  274,  408. 
Turgot,  64,  61,  78,  259,  413,  41b. 

ULPIAN,  255. 

VACOXICS  Vacnna,  23. 
Vasco,  48,  50,  51. 


WAGNER,  247,  308,  311. 
Whately,  102. 
Wirth,  286,  400. 
Wiskemann,  15,  27. 
Wollemborg,  150,  287. 


ZABARELLA  24. 
Zwingli,  27. 


THE  END 


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